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Modeling Asymmetric Volatility In The Chicago Board Options Exchange Volatility Index

Author

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  • URAL, Mert

    (Dokuz Eylul University, Faculty of Economics and Administrative Sciences, Department of Economics, 35160 Buca, Izmir, Turkey)

  • DEMİRELİ, Erhan

    (Dokuz Eylul University, Faculty of Economics and Administrative Sciences, Department of Administrative Sciences, 35160 Buca, Izmir, Turkey)

Abstract

Empirical studies have shown that a large number of financial asset returns exhibit fat tails (leptokurtosis) and are often characterized by volatility clustering and asymmetry. This paper considers the ability of the asymmetric GARCH-type models (TGARCH, EGARCH, APGARCH) to capture the stylized features of volatility in the Chicago Board Options Exchange Volatility Index (VIX). We analyzed daily VIX returns for the period September 26th, 2012 - September 27th, 2017. The results of this paper suggest that in the presence of asymmetric responses to innovations in the market, the EGARCH (1,1) Student-t model which accommodates the kurtosis of VIX return series is preferred.

Suggested Citation

  • URAL, Mert & DEMİRELİ, Erhan, 2018. "Modeling Asymmetric Volatility In The Chicago Board Options Exchange Volatility Index," Studii Financiare (Financial Studies), Centre of Financial and Monetary Research "Victor Slavescu", vol. 22(1), pages 20-31.
  • Handle: RePEc:vls:finstu:v:22:y:2018:i:1:p:20-31
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    References listed on IDEAS

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    More about this item

    Keywords

    asymmetry; volatility; response to market innovation;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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