Forecasting with Option-Implied Information

Peter Christoffersen, Kris Jacobs, Bo Young Chang

Research output: Chapter in Book/Report/Conference proceedingBook chapterResearchpeer-review


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 option-implied information in a well-defined manner. Going beyond the univariate option-implied density, we also consider results on option-implied covariance, correlation and beta forecasting, as well as the use of option-implied information in cross-sectional forecasting of equity returns. We discuss how option-implied information can be adjusted for risk premia to remove biases in forecasting regressions.
Original languageEnglish
Title of host publicationHandbook of Economic Forecasting
EditorsGraham Elliott, Allan Timmermann
Place of PublicationAmsterdam
Publication date2013
ISBN (Print)9780444536839, 9780444627315
Publication statusPublished - 2013
SeriesHandbooks in Economics

Cite this