Title:Volatility Estimation using GARCH Family of Models: Comparison with Option PricingYear: 2018

Authors: Dr. Shailesh Rastogi, Jeffrey Don, and Nithya V
Journal: Pacific Business Review International
Publication date: 2018 February
Publisher: Pacific Business Review International
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Volatility estimation has been at the centre stage for Risk Management in securities market. There are various methods, which come to rescue for estimation of volatility. GARCH family of models are also in the same league and have been quite useful for estimating volatility. But post hoc there are no methods to estimate the accuracy of the forecast of the volatility estimates by various methods. Implied Volatility (IV) takes into consideration the market prices of options, and estimate the future volatility of the underlying assets. Empirically, it has been found that IV is a better future estimate of the volatility. Using current options prices in Indian derivatives market, IV has been estimated for all the permitted stocks. These IVs have been compared with volatility estimated by GARCH family of models in this paper. IGARCH (Integrated GARCH) model is giving the best results among all the other methods used in the paper.