Employing volatility of volatility in long-term volatility forecasts

We demonstrate how simple long-term volatility forecasts can be improved by incorporating the volatility of short-term volatility into forecasting models. The theoretical framework for modelling volatility of short-term volatility, along with its role in long-term forecasts, will be outlined. Empirical tests will then illustrate the value of including volatility of volatility measures in practice.…