1 January 1994Financial Analysts JournalVolume 50, Issue 1
Forecasting Better Hedge Ratios
Robert A. Strong, PhD, CFA
Call options on the Standard & Poor's 100 index over the 1984 - 88 period provide evidence that the level of future price volatility implied by Black-Scholes option prices contains both an ex post factor (related to historical return volatility) and an ex ante factor (related to past levels of implied volatility). This information can be used in forecasting implied volatility. Joint use of historical and implied volatility provides a more accurate forecast of the hedge ratio than a naive forecast that assumes the level of implied volatility will remain unchanged.
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Financial Analysts Journal
CFA Institute Member ContentPublisher Information
Association for Investment Management and Research
3 pages doi.org/10.2469/faj.v50.n1.70ISSN/ISBN: 0015-198X
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