Measuring historical volatility.

Louis H. Ederington; Wei Guan

Measuring historical volatility.

Louis H. Ederington, Wei Guan

University of South Florida

Research output: Contribution to journal › Article › peer-review

Abstract

The adjusted mean absolute deviation is proposed as a simple-to-calculate alternative to the historical standard deviation as a measure of historical volatility and an input to option pricing models. We show that this measure forecasts future volatility consistently better than the historical standard deviation across a wide variety of markets. Moreover, it forecasts as well as or better than the GARCH(l, 1) [C53, G13]

Original language	American English
Journal	Default journal
State	Published - Jan 1 2006

Keywords

Options trading
Volatility
Pricing policies
Standard deviation
Mathematical models
Forecasts
Studies

Disciplines

Business
Finance

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Cite this

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title = "Measuring historical volatility.",

abstract = " The adjusted mean absolute deviation is proposed as a simple-to-calculate alternative to the historical standard deviation as a measure of historical volatility and an input to option pricing models. We show that this measure forecasts future volatility consistently better than the historical standard deviation across a wide variety of markets. Moreover, it forecasts as well as or better than the GARCH(l, 1) [C53, G13]",

keywords = "Options trading, Volatility, Pricing policies, Standard deviation, Mathematical models, Forecasts, Studies",

author = "Ederington, {Louis H.} and Wei Guan",

note = "Ederington, L.H. & Guan, W. (2006). Measuring historical volatility. Journal of Applied Finance, 16(1), 5-14.",

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AU - Guan, Wei

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PY - 2006/1/1

Y1 - 2006/1/1

N2 - The adjusted mean absolute deviation is proposed as a simple-to-calculate alternative to the historical standard deviation as a measure of historical volatility and an input to option pricing models. We show that this measure forecasts future volatility consistently better than the historical standard deviation across a wide variety of markets. Moreover, it forecasts as well as or better than the GARCH(l, 1) [C53, G13]

AB - The adjusted mean absolute deviation is proposed as a simple-to-calculate alternative to the historical standard deviation as a measure of historical volatility and an input to option pricing models. We show that this measure forecasts future volatility consistently better than the historical standard deviation across a wide variety of markets. Moreover, it forecasts as well as or better than the GARCH(l, 1) [C53, G13]

KW - Options trading

KW - Volatility

KW - Pricing policies

KW - Standard deviation

KW - Mathematical models

KW - Forecasts

KW - Studies

UR - https://digitalcommons.usf.edu/fac_publications/761

UR - https://login.ezproxy.lib.usf.edu/login?url=http://search.proquest.com/docview/201529929/fulltextPDF/4223D1E60AE04517PQ/3?accountid=14745

M3 - Article

JO - Default journal

JF - Default journal

ER -

Measuring historical volatility.

Abstract

Keywords

Disciplines

Access to Document

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