Section Article

Interactions between Implied and Realised Variances in Indias Exchange Rate Volatility
Author(s): Komal Chauhan

Abstract
This paper investigates the relationship between implied and realised exchange rate volatilities in India with a specific emphasis on their interaction and mutual effect. Implied volatility which is calculated from financial derivatives like options reflects the markets anticipated level of future volatility. On the other hand realised volatility is determined by analysing past variations in exchange rates. This article use a large dataset of the Indian rupee compared to major currencies and applies econometric models to examine the correlation between the volatility of these two entities. The findings demonstrate a noteworthy correlation between implied and realised volatilities where implied volatility offers valuable predictive information about future realised volatility. This phenomenon is most noticeable during times of economic or political instability. The results have significant implications for regulators investors and financial institutions emphasising the need of using both indicated and realised volatilities in risk management and forecasting strategies.