A Comparison of Implied Standard Deviations and Historical Estimates of Volatility During and After the Participation of the British Pound in the ERM

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dc.contributor.authorNeves, Andrea Marolt Pimentaen
dc.contributor.committeechairWaud, Roger N.en
dc.contributor.committeememberLutton, Thomas J.en
dc.contributor.committeememberWentzler, Nancy A.en
dc.contributor.committeememberReed, Brianen
dc.contributor.departmentEconomicsen
dc.date.accessioned2014-03-14T20:33:01Zen
dc.date.adate1999-04-20en
dc.date.available2014-03-14T20:33:01Zen
dc.date.issued1998-05-01en
dc.date.rdate1999-04-20en
dc.date.sdate1999-03-31en
dc.description.abstractThis thesis tests the hypothesis that the qualities of different forecasts of exchange rate volatility depend on the underlying exchange rate regime. By examining the British pound during and after its withdrawal from the European Monetary System (EMS), this analysis compares "backward-looking" historical forecasts of future volatility with the "forward-looking" forecast of volatility reflected in current option prices. Because option implied volatility contains the market's most current expectations about future prices, theory and much previous evidence suggests this should be the superior predictor of future volatility. In contrast to previous research by findings, this study concludes that option implied volatility is not superior. During the time when the pound was in the EMS, implied volatility provided reasonably good forecasts of future volatility. However, after the pound withdrew from the EMS, various statistical measures of historical volatility are found to have greater informational content and predictive power about future actual volatility than implied volatility. In particular, a time series estimate, specifically a GARCH(1,1) model, had the most informational content and predictive power about realized pound volatility, especially in the period following sterling's withdrawal from the EMS.en
dc.description.degreeMaster of Artsen
dc.identifier.otheretd-033199-162115en
dc.identifier.sourceurlhttp://scholar.lib.vt.edu/theses/available/etd-033199-162115/en
dc.identifier.urihttp://hdl.handle.net/10919/31593en
dc.publisherVirginia Techen
dc.relation.haspartThesisTable4a&4b.pdfen
dc.relation.haspartThesisTable2.pdfen
dc.relation.haspartfig1.PDFen
dc.relation.haspartfig2.PDFen
dc.relation.haspartThesisTable7.pdfen
dc.relation.haspartThesisTable8.pdfen
dc.relation.haspartfig3.PDFen
dc.relation.haspartThesisTable6.pdfen
dc.relation.haspartThesisTable1.pdfen
dc.relation.haspartThesis.PDFen
dc.relation.haspartThesisTable5.pdfen
dc.relation.haspartThesisTable3.pdfen
dc.rightsIn Copyrighten
dc.rights.urihttp://rightsstatements.org/vocab/InC/1.0/en
dc.subjectARCHen
dc.subjectERMen
dc.subjectVolatilityen
dc.subjectForeign Exchangeen
dc.subjectImplied Volatilityen
dc.titleA Comparison of Implied Standard Deviations and Historical Estimates of Volatility During and After the Participation of the British Pound in the ERMen
dc.typeThesisen
thesis.degree.disciplineEconomicsen
thesis.degree.grantorVirginia Polytechnic Institute and State Universityen
thesis.degree.levelmastersen
thesis.degree.nameMaster of Artsen

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