Risk-neutral (RN) and real-world (RW) densities are derived from option prices and risk assumptions, and are compared with historical densities obtained from time series. Two parametric methods that adjust from RN to RW densities are developed, firstly a CRRA risk aversion transformation and...

Using high frequency intraday returns, we calculate the realized volatility of the USD/GBP, USD/DEM and USD/JPY exchange rates. It is shown that the dynamics of the logarithms of realized volatilities can be captured by either a fractionally integrated long memory model or a short memory ARMA...

The volatility information contained in high-frequency exchange rate quotations and in implied volatilities calculated from options prices is compared by estimating ARCH models for hourly and daily DM/$ returns. The results are based on the year of Reuters quotations supplied by Olsen amp;...

We compare forecasts of the realized volatility of the pound, mark and yen exchange rates against the dollar, calculated from intraday rates, over horizons ranging from one day to three months. Our forecasts are obtained from a short memory ARMA model, a long memory ARFIMA model, a GARCH model...