The information content of Canadian implied volatility indexes

For predicting future volatility, empirical studies find mixed results regarding two issues: (1) whether model free implied volatility has more information content than Black-Scholes model-based implied volatility; (2) whether implied volatility outperforms historical volatilities. In this thesis, we address these two issues using the Canadian financial data. First, we examine the information content and forecasting power between VIXC - a model free implied volatility, and MVX - a model-based implied volatility. The GARCH in-sample test indicates that VIXC subsumes all information that is reflected in MVX. The out-of-sample examination indicates that VIXC is superior to MVX for predicting the next 1-, 5-, 10-, and 22-trading days' realized volatility. Second, we investigate the predictive power between VIXC and alternative volatility forecasts derived from historical index prices. We find that for time horizons lesser than 10-trading days, VIXC provides more accurate forecasts. However, for longer time horizons, the historical volatilities, particularly the random walk, provide better forecasts. We conclude that VIXC cannot incorporate all information contained in historical index prices for predicting future volatility.

Photograph - Landscape, Lake and Surrounding Trees

A landscape photograph of a lake and surrounding trees.

Photograph - Landscape, Lake and Surrounding Trees #2

A landscape photograph of a lake and surrounding trees.

Watercolour painting, Trees

A watercolour painting of trees, 15cm x 10com, signed by Margaret Woodruff.

Notice of sale regarding the late Ezekiel Cudney’s property including the dwelling, barn and fruit trees

Notice of sale regarding the late Ezekiel Cudney’s property including the dwelling, barn and fruit trees. The land contains 39 acres of parts of Lots 9 and 10 on the Welland River in the Township of Willoughby. The notice states that you must apply to S.D. Woodruff of St. Catharines. This is handwritten on a small piece of paper, Dec. 5, 1892.