Forecasting Future Volatility From Option Prices 

Evidence exists that option prices produce biased forecasts of future volatility across a wide variety of options markets.  This paper presents two main results.  First, approximately half of the forecasting bias in the S&P 500 index (SPX) options market is eliminated by constructing measures of realized volatility from five minute observations on SPX futures rather than from daily closing SPX levels.  Second, much of the remaining forecasting bias is eliminated by employing an option pricing model that permits a non-zero market price of volatility risk.