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Virtual volatility

Author

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  • Silva, A. Christian
  • Prange, Richard E.

Abstract

We introduce the concept of virtual volatility. This simple but new measure shows how to quantify the uncertainty in the forecast of the drift component of a random walk. The virtual volatility also is a useful tool in understanding the stochastic process for a given portfolio. In particular, and as an example, we were able to identify mean reversion effect in our portfolio. Finally, we briefly discuss the potential practical effect of the virtual volatility on an investor asset allocation strategy.

Suggested Citation

  • Silva, A. Christian & Prange, Richard E., 2007. "Virtual volatility," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 376(C), pages 507-516.
    • Handle: RePEc:eee:phsmap:v:376:y:2007:i:c:p:507-516
    DOI: 10.1016/j.physa.2006.10.017
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    References listed on IDEAS

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