Forecasting Bitcoin Volatility: Evidence from the Options Market
Journal of Futures Markets, Forthcoming
41 Pages Posted: 9 Apr 2020 Last revised: 8 Jun 2020
Date Written: March 15, 2020
Abstract
This paper studies a large number of Bitcoin options traded on the options exchange Deribit. We use the trades to calculate implied volatility and analyze if volatility forecasts can be improved using such information. Implied volatility is less accurate than ARMA or HAR model forecasts in predicting short-term future bitcoin volatility (1 day ahead), but superior in predicting long-term volatility (7, 10, 15 days ahead). Further, a combination of implied volatility and model-based forecasts provides the highest accuracy for all forecasting horizons revealing that the bitcoin options market contains unique information.
Keywords: Bitcoin, Bitcoin Options Market, Implied Volatility, Forecasting, Realized Volatility
JEL Classification: G12, G13, G14
Suggested Citation: Suggested Citation