The new approaches in econometric research of financial markets. Distributed volatility
AbstractVolatility is one of the most important characteristics of any financial instrument return. The idea which states that all information about financial assets is contained in its price is implemented in current approaches to modeling the volatility of financial assets and it corresponds well with the efficient market hypothesis. Therefore, all volatility models use only the information contained in the price of the asset is being modeled. In this paper we propose an approach that implements the assumption that the volatility of an asset depends on the market volatility. But the relationship is not correlation-regression, though this may exist, but is probabilistic, in the sense that the probability of the high volatility of any asset increases with the volatility of the financial market. To implement this approach, a model which helps to evaluate the distributed volatility is offered. Distributed volatility, however, as VaR, helps to evaluate the positive and negative part of volatility, but unlike VaR, describes volatility dynamics. So it allows forecast calculation of the financial asset volatility, particularly in estimation of the intrinsic value of stock options.
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Bibliographic InfoArticle provided by Pro Global Science Association in its journal Published in Review of Applied Socio-Economic Research.
Volume (Year): 4 (2012)
Issue (Month): 2 (Decembre)
volatility; distributed volatility; forecast estimation of volatility; financial market; VaR; Black-Scholes formula; CRR-model; model ARCH;
Find related papers by JEL classification:
- C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
- C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
- C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
- G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
- G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation
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