The Relationship Between Implied and Realized Volatility of S&P 500 Index

implied and realized volatility also forms a formal test of information efficiency of the option market. Hull and White (1987) show that when volatility is constant, the Black-Scholes implied volatility of an ATM (at-the-money) option approximately equals to the expected future realized volatility during the option life. This means that if option market is infor-mation efficient in reflecting underlying asset market, then the implied volatility should form an unbiased forecast of future realized volatility over the option life. However, the regression between implied and realized volatility presents quite mixed results. Canina and Figlewski (1993) find that implied volatility of S&P 100 index option contains no information 1