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Systematics of Advanced Capital Market Models based on Empirical Research

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  • Gerhard Schroeder

    (Private Research)

Abstract

The complex blue prints of ODE and PDE based capital market models remain closed to systematic review. Particularly, when some authors of mathematical models can not or may not offer explicit solutions. Artificially generated 'cloned' courses can demonstrate the impact of various types of stochastic volatility in these cases. The Black and Scholes formula has the disadvantage that its key variable, the (future) volatility. is not known. In fact, what is known is that the volatility is volatile itself and the assumption of a stable volatility is violated. The socalled advanced models try to model the stochastic volatility. However, this still implies assumptions how a particular volatility may (or may not) develope until a given point of time. An analysis of key indexes shows stochastic properties difficult to cover in mathematical models yet being still interesting.

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File URL: http://128.118.178.162/eps/if/papers/0512/0512003.pdf
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Bibliographic Info

Paper provided by EconWPA in its series International Finance with number 0512003.

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Length: 28 pages
Date of creation: 14 Dec 2005
Date of revision:
Handle: RePEc:wpa:wuwpif:0512003

Note: Type of Document - pdf; pages: 28. First Systematics of advanced Capital Market Models
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Web page: http://128.118.178.162

Related research

Keywords: Model Systematics; Black Scholes; fair value; option pricing; mispricing; artificially generated 'cloned' quotations; stochastic volalatility; mean reversion; test methods; testing capital market models; experimental economical research; ODE; PDE; hyperbolic; index particularities;

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  1. Bollerslev, Tim & Engle, Robert F. & Nelson, Daniel B., 1986. "Arch models," Handbook of Econometrics, in: R. F. Engle & D. McFadden (ed.), Handbook of Econometrics, edition 1, volume 4, chapter 49, pages 2959-3038 Elsevier.
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