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Stock Index Volatility: the case of IPSA

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  • Alfaro, Rodrigo
  • Silva, Carmen Gloria

Abstract

This paper introduces alternative measurements that use additional information of prices during the day: opening, minimum, maximum, and closing prices. Using the binomial model as the distribution of the stock price we prove that these alternative measurements are more efficient than the traditional ones that rely only in closing price. Following Garman and Klass (1980) we compute the relative efficiency of these measurements showing that are 3 to 4 times more efficient than using closing prices. Using daily data of the Chilean stock market index we show that a discrete-time approximation of the stock price seems to be more accurate than the continuous-time model. Also, we prove that there is a high correlation between intraday volatility measurements and implied ones obtained from options market (VIX). For that we propose the use of intraday information to estimate volatility for the cases where the stock markets do not have an associated option market.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 25906.

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Date of creation: 31 Mar 2010
Date of revision: 31 Mar 2010
Handle: RePEc:pra:mprapa:25906

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Keywords: Volatility; Binomial Model; VIX; Bias and Efficiency.;

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References

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  1. Cox, John C. & Ross, Stephen A. & Rubinstein, Mark, 1979. "Option pricing: A simplified approach," Journal of Financial Economics, Elsevier, vol. 7(3), pages 229-263, September.
  2. Rodrigo A. Alfaro & Carmen Gloria Silva, 2008. "Volatilidad de Indices Accionarios: El caso del IPSA," Latin American Journal of Economics-formerly Cuadernos de Economía, Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 45(132), pages 217-233.
  3. Yang, Dennis & Zhang, Qiang, 2000. "Drift-Independent Volatility Estimation Based on High, Low, Open, and Close Prices," The Journal of Business, University of Chicago Press, vol. 73(3), pages 477-91, July.
  4. Garman, Mark B & Klass, Michael J, 1980. "On the Estimation of Security Price Volatilities from Historical Data," The Journal of Business, University of Chicago Press, vol. 53(1), pages 67-78, January.
  5. Parkinson, Michael, 1980. "The Extreme Value Method for Estimating the Variance of the Rate of Return," The Journal of Business, University of Chicago Press, vol. 53(1), pages 61-65, January.
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Cited by:
  1. Daniel Oda, 2013. "Introducing Liquidity Risk in the Contingent-Claim Analysis for the Banks," Working Papers Central Bank of Chile 681, Central Bank of Chile.

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