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Forecast Errors on the Implied Volatility of Equity Options

This thesis investigates the rational pricing of S&P 500 index options, examining mean reversion dynamics of implied variances and the predictability of forecast errors using forecast revisions. The findings indicate systematic biases in option pricing, with evidence of both overreaction and underreaction depending on option term.

S&P 500Option PricingTrading StrategyFinancial Markets
Option Straddle Diagram