Analysis of market volatility via a dynamically purified option price process
The paper studies methods of dynamic estimation of volatility for financial time series. We suggest to estimate the volatility as the implied volatility inferred from some artificial ‘dynamically purified' price process that in theory allows to eliminate the impact of the stock price movements....
| Main Authors: | , |
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| Format: | Journal Article |
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World Scientific
2014
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| Online Access: | http://hdl.handle.net/20.500.11937/10701 |
| _version_ | 1848747605623832576 |
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| author | Luong, C. Dokuchaev, Nikolai |
| author_facet | Luong, C. Dokuchaev, Nikolai |
| author_sort | Luong, C. |
| building | Curtin Institutional Repository |
| collection | Online Access |
| description | The paper studies methods of dynamic estimation of volatility for financial time series. We suggest to estimate the volatility as the implied volatility inferred from some artificial ‘dynamically purified' price process that in theory allows to eliminate the impact of the stock price movements. The complete elimination would be possible if the option prices were available for continuous sets of strike prices and expiration times. In practice, we have to use only finite sets of available prices. We discuss the construction of this process from the available option prices using different methods. In order to overcome the incompleteness of the available option prices, we suggest several interpolation approaches, including the first order Taylor series extrapolation and quadratic interpolation. We examine the potential of the implied volatility derived from this proposed process for forecasting of the future volatility, in comparison with the traditional implied volatility process such as the volatility index VIX. |
| first_indexed | 2025-11-14T06:51:48Z |
| format | Journal Article |
| id | curtin-20.500.11937-10701 |
| institution | Curtin University Malaysia |
| institution_category | Local University |
| last_indexed | 2025-11-14T06:51:48Z |
| publishDate | 2014 |
| publisher | World Scientific |
| recordtype | eprints |
| repository_type | Digital Repository |
| spelling | curtin-20.500.11937-107012019-02-19T05:34:46Z Analysis of market volatility via a dynamically purified option price process Luong, C. Dokuchaev, Nikolai implied volatility approximation of missing data volatility index purified option prices dynamic forecasting econometrics The paper studies methods of dynamic estimation of volatility for financial time series. We suggest to estimate the volatility as the implied volatility inferred from some artificial ‘dynamically purified' price process that in theory allows to eliminate the impact of the stock price movements. The complete elimination would be possible if the option prices were available for continuous sets of strike prices and expiration times. In practice, we have to use only finite sets of available prices. We discuss the construction of this process from the available option prices using different methods. In order to overcome the incompleteness of the available option prices, we suggest several interpolation approaches, including the first order Taylor series extrapolation and quadratic interpolation. We examine the potential of the implied volatility derived from this proposed process for forecasting of the future volatility, in comparison with the traditional implied volatility process such as the volatility index VIX. 2014 Journal Article http://hdl.handle.net/20.500.11937/10701 10.1142/S2010495214500067 World Scientific fulltext |
| spellingShingle | implied volatility approximation of missing data volatility index purified option prices dynamic forecasting econometrics Luong, C. Dokuchaev, Nikolai Analysis of market volatility via a dynamically purified option price process |
| title | Analysis of market volatility via a dynamically purified option price process |
| title_full | Analysis of market volatility via a dynamically purified option price process |
| title_fullStr | Analysis of market volatility via a dynamically purified option price process |
| title_full_unstemmed | Analysis of market volatility via a dynamically purified option price process |
| title_short | Analysis of market volatility via a dynamically purified option price process |
| title_sort | analysis of market volatility via a dynamically purified option price process |
| topic | implied volatility approximation of missing data volatility index purified option prices dynamic forecasting econometrics |
| url | http://hdl.handle.net/20.500.11937/10701 |