A Comparison of Implied and Realized Volatility in the Nordic Power Forward Market

16 Pages Posted: 17 Nov 2015

See all articles by Ole Birkelund,

Ole Birkelund,

Norwegian University of Science and Technology

Erik Haugom

Inland Norway University of Applied Sciences

Peter Molnár

University of Stavanger

Martin Opdal

Norwegian University of Science and Technology

Sjur Westgaard

Norwegian University of Science and Technology (NTNU) - Department of Industrial Economics and Technology

Date Written: February 7, 2015

Abstract

In this paper we study implied and realized volatility for the Nordic power forward market. We create an implied volatility index with a fixed time to maturity. This index is compared to a realized volatility time series calculated from high-frequency data. The results show that the implied volatility has a positive bias against the realized volatility measure indicating that there is a risk premium imposed by option traders. The results are consistent with previous research in other markets.

Keywords: Implied volatility, realized volatility, electricity, forwards, options

JEL Classification: G10, G12, G13

Suggested Citation

Birkelund,, Ole and Haugom, Erik and Molnár, Peter and Opdal, Martin and Westgaard, Sjur, A Comparison of Implied and Realized Volatility in the Nordic Power Forward Market (February 7, 2015). Available at SSRN: https://ssrn.com/abstract=2691344 or http://dx.doi.org/10.2139/ssrn.2691344

Ole Birkelund,

Norwegian University of Science and Technology ( email )

Høgskoleringen
Trondheim NO-7491, 7491
Norway

Erik Haugom

Inland Norway University of Applied Sciences ( email )

HOME PAGE: http://https://www.inn.no/finn-en-ansatt/erik-haugom.html

Peter Molnár (Contact Author)

University of Stavanger ( email )

UiS Business School
Stavanger, 4036
Norway

Martin Opdal

Norwegian University of Science and Technology ( email )

Høgskoleringen
Trondheim NO-7491, 7491
Norway

Sjur Westgaard

Norwegian University of Science and Technology (NTNU) - Department of Industrial Economics and Technology ( email )

NO-7491 Trondheim
Norway

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