The Forecast Performance of Model-Free Implied Volatility: Evidence from DAX Index Options

Volatility has a central role in various theoretical and practical applications in financial markets. These include the applications related to portfolio theory, derivatives pricing and financial risk management. Both theoretical and practical applications require good estimates and forecasts for the asset return volatility. The goal of this study is to examine the forecast performance of one of the more recent volatility measures, model-free implied volatility. Model-free implied volatility is extracted from the prices in the option markets, and it aims to provide an unbiased estimate for the market’s expectation on the future level of volatility. Since it is extracted from the option prices, model-free implied volatility should contain all the relevant information that the market participants have. Moreover, model-free implied volatility requires less restrictive assumptions than the commonly used Black-Scholes implied volatility, which means that it should be less biased estimate for the market’s expectations. Therefore, it should also be a better forecast for the future volatility. The forecast performance of model-free implied volatility is evaluated by comparing it to the forecast performance of Black-Scholes implied volatility and GARCH(1,1) forecast. Weekly forecasts for six years period were calculated for the forecasted variable, German stock market index DAX. The data consisted of price observations for DAX index options. The forecast performance was measured using econometric methods, which aimed to capture the biasedness, accuracy and the information content of the forecasts. The results of the study suggest that the forecast performance of model-free implied volatility is superior to forecast performance of GARCH(1,1) forecast. However, the results also suggest that the forecast performance of model-free implied volatility is not as good as the forecast performance of Black-Scholes implied volatility, which is against the hypotheses based on theory. The results of this study are consistent with the majority of prior research on the subject.

The flow of reality’s development: from postmodernism to post-postmodernism in John Irving’s The World According to Garp and Last Night in Twisted River

In this master’s thesis, I examine the development of writer-characters and metafiction from John Irving’s The World According to Garp to Last Night in Twisted River and how this development relates to the development of late twentieth century postmodern literary theory to twenty-first century post-postmodern literary theory. The purpose of my study is to determine how the prominently postmodern feature metafiction, created through the writer-character’s stories-within-stories, has changed in form and function in the two novels published thirty years apart from one another, and what possible features this indicates for future post-postmodern theory. I establish my theoretical framework on the development of metafiction largely on late twentieth-century models of author and authorship as discussed by Roland Barthes, Wayne Booth and Michel Foucault. I base my close analysis of metafiction mostly on Linda Hutcheon’s model of overt and covert metafiction. At the end of my study, I examine Irving’s later novel through Suzanne Rohr’s models of reality constitution and fictional reality. The analysis of the two novels focuses on excerpts that feature the writer-characters, their stories-within-stories and the novels’ other characters and the narrators’ evaluations of these two. I draw examples from both novels, but I illustrate my choice of focus on the novels at the beginning of each section. Through this, I establish a method of analysis that best illustrates the development as a continuum from pre-existing postmodern models and theories to the formation of new post-postmodern theory. Based on my findings, the thesis argues that twenty-first century literary theory has moved away from postmodern overt deconstruction of the narrative and its meaning. New post-postmodern literary theory reacquires the previously deconstructed boundaries that define reality and truth and re-establishes them as having intrinsic value that cannot be disputed. In establishing fictional reality as self-governing and non-intrudable, post-postmodern theory takes a stance against postmodern nihilism, which indicates the re-founded, non-questionable value of the text’s reality. To continue mapping other possible features of future post-postmodern theory, I recommend further analysis solely on John Irving’s novels’ published in the twenty-first century.

Poliittisesta aluetutkimuksesta konfliktinsäätelyteoriaan : radikalismi suomalaisen valtio-opin tutkimuskohteena 1950-luvulta 1970-luvulle

Abstract: From a political science of regions to conflict regulation theory. The study of radicalism in Finnish political science from the 1950s to the 1970s