LEARNING FROM THE TERM STRUCTURE OF IMPLIED VOLATILITY IN FOREIGN EXCHANGE OPTIONS

1998 ◽  
pp. 73-93
Author(s):  
José Manuel Campa ◽  
P. H. Kevin Chang
Keyword(s):  
Term Structure ◽  
Foreign Exchange ◽  
Implied Volatility ◽  
Exchange Options

scholarly journals Understanding Foreign Exchange Option Returns: The Information Content Of Volatility

2016 ◽  
Vol 32 (2) ◽  
pp. 439
Author(s):  
Lamya Kermiche ◽  
Philippe Dupuy
Keyword(s):  
Risk Factors ◽  
Foreign Exchange ◽  
Implied Volatility ◽  
Additional Risk ◽  
Rational Agents ◽  
Option Returns ◽  
Asset Pricing Theory ◽  
Pricing Theory ◽  
Traditional Paradigm ◽  
Exchange Options

According to general asset pricing theory, options should reward their holders for the systematic risk they are bearing. In this paper, we study the returns of foreign exchange options. We find that, by sorting options according to the distance of their implied volatility from the historical volatility, we obtain portfolios with positive average monthly returns. These returns are not explained by standard aggregate risk factors, which suggest either that additional risk factors should be accounted for, or that investors behavior differs from the traditional paradigm of rational agents.

Sign in / Sign up

Export Citation Format

Share Document