This paper examines the relation between dollar-real exchange rate volatility implied in option prices and subsequent realized volatility. It investigates whether implied volatilities contain information about volatility over the remaining life of the option which is not present in past returns....

Implied volatility generated from observed option prices reflects market expectations of future volatility. This paper determines whether or not, implied volatilities, and hence market expectations, contain any genuinely forward looking information not already captured by historical information....