<p>We consider a nonlinear model equation, known as the Localized Induction Equation, describing the motion of a vortex filament immersed in an incompressible and inviscid fluid. We show stability estimates for an arc-shaped vortex filament, which is an exact solution to an initial-boundary value problem for the Localized Induction Equation. An arc-shaped filament travels along an axis at a constant speed without changing its shape, and is oriented in such a way that the arc stays in a plane that is perpendicular to the axis. We prove that an arc-shaped filament is stable in the Lyapunov sense for general perturbations except in the axis-direction, for which the perturbation can grow linearly in time. We also show that this estimate is optimal. We then apply the obtained stability estimates to study the stability of a circular vortex filament under some symmetry assumptions on the initial perturbation. We do this by dividing the circular filament into arcs, apply the stability estimate to each arc-shaped filament, and combine the estimates to obtain estimates for the whole circle. The optimality of the stability estimates for an arc-shaped filament also shows that a circular filament is not stable in the Lyapunov sense, namely, certain perturbations can grow linearly in time.</p>