A Comparison of Implied and Realized Volatility in the Nordic Power Forward Market
16 Pages Posted: 17 Nov 2015
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
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