Relation between implied volatility and realized volatility in USD-TRY options

This study aims to explain concepts of derivative markets and derivative instruments, specifically option contracts, which are currently being planned to be quoted in Turkey markets, and to explain relation between concepts of implied volatility and realized volatility which are both closely integrated with derivative markets and derivative instruments.First of all history of derivative markets and derivative instruments are explicated, secondly the literature review concerning options and volatility is presented. Lastly, in order to explain relation between implied and relized volatility, regression analyses are conducted on implied and realized volatility values of options in USD-TRY.As a result it is determined that there is a statistically significant relation between implied volatility and realized volatility. Furthermore it is concluded that changes in realized volatility is caused by lagged values of implied volatility and changes in implied volatility is caused by lagged values of realized volatility.Keywords: Derivative markets, derivative instrument, options, volatility