This study compares implied volatility against historical volatility and against GARCH predicted volatility, respectively, to develop trading strategies for option time spreads. There are sixteen different time spread strategies tested by using the data set from Taiwan index option (TXO) and Standard and Poor’s 500 index option (SPX) each. The empirical period is from Jan. 2003 to Dec. 2007. The empirical results indicate that the GARCH model is the best volatility predictor among three competitors. The trading strategies based upon GARCH predicted volatility provide largest profits for both TXO and SPX.

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