What is the Importance of Volatlity Forecast

[dacronje]

I'm trying to wrap my head around the reason one would make use of volatility forecasting?
I have read a few research papers implementing time series models and volatility indexes to forecast volatility. Is the idea of forecasting volatility and improving volatility forecasts purely academical or is there a place for it in practice.
Is it correct to say that it can improve VaR calculations if you use a your volatility parameter from a model that can forecast volatility better?
Will better volatility forecast models also be able to improve the pricing of options?

Thank you in advance for any help and input.

 

[drahmah]

Recently, there has been a lot of interest and rising popularity in volatility-derived exchange-traded products. A very popular one is the VIX ETF issued by the Chicago Board Options Exchange (CBOE). The price of such volatility-derived contracts is determined by the volatility of the underlying asset - in the case of the VIX, it is calculated from implied volatilities on at-the-money options on the S&P500 stocks. Thus, if you can predict the volatilities on these stocks, then you can make a lot of money trading the relevant volatility products.

It's always the same game. If you see interest, it has to be because there's potential for profit.