Handbook of Economic Forecasting

Chapter 10

Forecasting with Option-Implied Information

Peter Christoffersen*^,†, Kris Jacobs^‡,** and Bo Young Chang^††,     ^*Rotman School of Management, University of Toronto, Canada, ^†Copenhagen Business School and CREATES, Denmark, ^‡Bauer College of Business, University of Houston, USA, ^**Tilburg University, Netherlands, ^††Financial Markets Department, Bank of Canada, Canada.

Abstract

This chapter surveys the methods available for extracting information from option prices that can be used in forecasting. We consider option-implied volatilities, skewness, kurtosis, and densities. More generally, we discuss how any forecasting object that is a twice differentiable function of the future realization of the underlying risky asset price can utilize ...