HISTORICAL AND IMPLIED VOLATILITIES: A REVIEW OF METHODOLOGY

Volatility is a subject of numerous studies. Many of them focus on predictive power of different sources of volatility. Most often, the Black Scholes implied volatility is believed to outperform historical volatility, although some research demonstrates that implied volatility is a biased forecast of future volatility. Taken into account different opinions, the paper aims at presenting alternative methods for estimating volatility.