Forecasting implied volatility in foreign exchange markets: a functional time series approach
利用函数型时间序列技术刻画并预测欧元/美元、欧元/英镑、欧元/日元三种外汇期权的隐含波动率曲线，在2006-2013年波动期表现优于传统参数模型，并通过交易策略验证其经济价值。
We utilise novel functional time series (FTS) techniques to characterise and forecast implied volatility in foreign exchange markets. In particular, we examine the daily implied volatility curves of FX options, namely; Euro/United States Dollar, Euro/British Pound, and Euro/Japanese Yen. The FTS model is shown to produce both realistic and plausible implied volatility shapes that closely match empirical data during the volatile 2006–2013 period. Furthermore, the FTS model significantly outperforms implied volatility forecasts produced by traditionally employed parametric models. The evaluation is performed under both in-sample and out-of-sample testing frameworks with our findings shown to be robust across various currencies, moneyness segments, contract maturities, forecasting horizons, and out-of-sample window lengths. The economic significance of the results is highlighted through the implementation of a simple trading strategy.