Intraday Volatility Models: Methods to Improve Real-Time Forecasts

Abstract

In this article, we present a volatility forecasting model consisting of a historical term (backward looking) and an implied term (forward looking). The model was compared to the more traditional forecasting methods and has proven to be an accurate predictor of volatility. Because the model incorporates information from the options market in real time, it can adjust almost instantaneously to changing regime schemes, making it a valuable metric for trading algorithms and realtime trading applications.