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Modelling the Stochastic Dynamics of Volatility for Equity Indices

Modelling the Stochastic Dynamics of Volatility for Equity Indices The paper develops a class of continuous timestochastic volatility models, which generate asset price returnsthat are approximately Student t distributed. Using thecriterion of local risk minimisation in an incomplete marketsetting, option prices are computed. It is shown that impliedvolatility smile and skew patterns of the type often observed inthe markets can be obtained from this class of stochasticvolatility models. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Asia-Pacific Financial Markets Springer Journals

Modelling the Stochastic Dynamics of Volatility for Equity Indices

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Publisher
Springer Journals
Copyright
Copyright © 2001 by Kluwer Academic Publishers
Subject
Finance; Finance, general; Macroeconomics/Monetary Economics//Financial Economics; International Economics; Econometrics; Economic Theory/Quantitative Economics/Mathematical Methods
ISSN
1387-2834
eISSN
1573-6946
DOI
10.1023/A:1016216432647
Publisher site
See Article on Publisher Site

Abstract

The paper develops a class of continuous timestochastic volatility models, which generate asset price returnsthat are approximately Student t distributed. Using thecriterion of local risk minimisation in an incomplete marketsetting, option prices are computed. It is shown that impliedvolatility smile and skew patterns of the type often observed inthe markets can be obtained from this class of stochasticvolatility models.

Journal

Asia-Pacific Financial Markets – Springer Journals

Published: Oct 9, 2004

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