Implied forward volatility forecasts revolutionize agricultural commodity market predictions.
The study looked at using options to predict future volatility in agricultural commodity markets. They found that implied forward volatility from options is better at forecasting than historical volatility. Corn and soybeans forecasts are accurate due to stable volatility during key growing periods. However, soybean meal, wheat, and hogs have less predictable volatility, leading investors to demand a risk premium for bearing volatility risk.