Forward looking information in S&P 500 options

Abstract

Implied volatility generated from observed option prices reflects market expectations of future volatility. This paper determines whether or not, implied volatilities, and hence market expectations, contain any genuinely forward looking information not already captured by historical information. Historical information is represented by current levels of volatility and model based forecasts using a variety of volatility models. The VIX index, constructed from S&P 500 options data is the measure of implied volatility used in this study. Once accounting for historical information, VIX appears to contain no forward looking information regarding future S&P 500 volatilityImplied volatility, information, volatility forecasts, volatility models, realized volatility