Research On The Effect Of Option Price Implicit Information On Volatility Prediction Considering Vo

In financial markets,volatility,as a measure of uncertainty in asset returns,has been an important variable of interest to investors,and it plays an important role in risk management,asset pricing,and investment portfolios.With the in-depth study of volatility,many scholars have proposed that volatility itself has uncertainty in the time dimension,and if the dynamics of volatility in the time dimension can be interpreted from the perspective of volatility uncertainty,it will help to better forecast volatility accurately and grasp the future volatility direction.Among the many volatility forecasting methods,the options market attracts many informed traders due to its higher leverage,making the implied information extracted from it contains forwardlooking information about the future market.At the same time,options have become the main instrument for trading volatility with their asymmetric payoff structure,so the development of the options market is important for improving financial markets and preventing financial risks.In this paper,we choose a new entry point from the options market,using volatility-of-volatility(VoV)as a measure of volatility uncertainty,and study whether considering volatility uncertainty enhances the predictive effect of option implied information for stock volatility,in order to provide a new perspective for volatility prediction and maintain the financial market This paper examines whether considering volatility uncertainty enhances the effect of option implied information on stock volatility forecasting,with a view to providing a new perspective on volatility forecasting and providing important references for maintaining the stability of financial markets.The research idea of this paper is as follows: first,based on the three-class heterogeneous autoregressive(HAR)model,the VoV time-varying factor is introduced to investigate the correlation between option implied information and stock market volatility under the consideration of volatility uncertainty,and the volatility forecasting ability of option implied information under the change of volatility uncertainty is evaluated under the condition of controlling historical information.The forecasting effects of in-sample as well as out-of-sample data are also compared separately,with a view to analyzing the effect played by volatility uncertainty in volatility forecasting using option implied information.The results show that the ability of option-implied information to forecast future stock market volatility is significantly enhanced during periods of high VoV,and this enhancement remains significant during extreme market events.The source of this enhancement is that during periods of high volatility uncertainty,informed traders choose to enter the options market first to trade because of the high leverage in the options market,thus increasing the forward-looking volatility information content in the options market.Second,an application-level analysis of the volatility forecasting effect is further conducted to investigate whether investors can use the volatility forecasting model incorporating option-implied information to enter the options market and trade volatility for excess returns under the influence of volatility uncertainty,extending the economic significance of the study.The results show that the volatility forecasting model that takes into account VoV performs better in volatility trading,and the finding is robust to the fact that using a model that incorporates volatility uncertainty produces better results when volatility trading in the options market after changing the trading strategy.The above study shows that volatility uncertainty is a key factor affecting volatility forecasting,that models incorporating volatility uncertainty perform better,and that applying the improved volatility forecasting model to the options trading strategy yields higher returns.It also provides a better understanding of the reasons why informed traders choose to enter and exit the options market from the VoV perspective,and thus more accurately grasp and interpret the forward-looking information contained in the options market and use the market information for strategy formulation.