Post by Sapphire Capital on Aug 7, 2008 23:20:40 GMT 4
VAR Modeling for Dynamic Loadings Driving Volatility Strings
Ralf Brüggemann
Humboldt University of Berlin - School of Business and Economics
Wolfgang K. Härdle
Humboldt University of Berlin - Institute for Statistics and Econometrics; Humboldt University of Berlin - Center for Applied Statistics and Economics (CASE)
Julius Mungo
Carsten Trenkler
Journal of Financial Econometrics, Vol. 6, Issue 3, pp. 361-381, 2008
Abstract:
The implied volatility of an option as a function of strike price and time to maturity forms a volatility surface. Traders price according to the dynamics of this high dimensional surface. Recent developments that employ semiparametric models approximate the implied volatility surface (IVS) in a finite dimensional function space, allowing for a low dimensional factor representation of these dynamics. This paper presents an investigation into the stochastic properties of the factor loading time series using the vector autoregressive (VAR) framework and analyzes the dynamic relationship of these factors with economic indicators.
papers.ssrn.com/sol3/papers.cfm?abstract_id=1146709
Ralf Brüggemann
Humboldt University of Berlin - School of Business and Economics
Wolfgang K. Härdle
Humboldt University of Berlin - Institute for Statistics and Econometrics; Humboldt University of Berlin - Center for Applied Statistics and Economics (CASE)
Julius Mungo
Carsten Trenkler
Journal of Financial Econometrics, Vol. 6, Issue 3, pp. 361-381, 2008
Abstract:
The implied volatility of an option as a function of strike price and time to maturity forms a volatility surface. Traders price according to the dynamics of this high dimensional surface. Recent developments that employ semiparametric models approximate the implied volatility surface (IVS) in a finite dimensional function space, allowing for a low dimensional factor representation of these dynamics. This paper presents an investigation into the stochastic properties of the factor loading time series using the vector autoregressive (VAR) framework and analyzes the dynamic relationship of these factors with economic indicators.
papers.ssrn.com/sol3/papers.cfm?abstract_id=1146709