Communications Project

Document Type:Master's Thesis
Name:Steven Cahill
Title:Efficient Market Forecasts Utilizing NYMEX Futures and Options
Degree:Master of Arts
Committee Chair: Roger Waud
Committee Members:Nancy Wentzler
Brian Reid
Tom Lutton
Keywords:Futures, Options, Forecast, Natural Gas
Date of defense:May 28, 1998
Availability:Release the entire work immediately worldwide.


This study develops a method for estimating confidence intervals surrounding futures based forecasts of natural gas prices. The method utilizes the Barone-Adesi and Whaley model for option valuation to "back-out" the market's assessment of the annualized standard deviation of natural gas futures prices. The various implied standard deviations are then weighted and combined to form a single weighted implied standard deviation following the procedures outlined by Chiras and Manaster. This option implied weighted standard deviation is then tested against the more traditional "historical" measure of the standard deviation. The paper then develops the procedure to transform the weighted standard deviation and futures price into a price range at the option expiration date. The accuracy of this forecast is then tested against 15 and 30 day average forecasts.

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