Price distributions forecast has become a relevant subject for risk and pricing literature. Special concern resides on tail probabilities, which usually present more severe observations than Normal distributions would predict. This work aims to verify ifthe volatility implied in real-dollar options contains useful information about unexpected large-magnitude returns. Implied volatility is also checked as a predictor for realized volatility. Our results indicate that implied volatilities provide useful information on unusual returns and also work as a good predictor for observed volatility. Moreover, we implement an early-warning system and implied volatilities seem to signalize large-magnitude returns.
Informational Content; Predictive Power; Early Warning
