Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
5091221 | Journal of Banking & Finance | 2007 | 20 Pages |
Abstract
We explore the ability of alternative popular continuous-time diffusion and jump-diffusion processes to capture the dynamics of implied volatility indices over time. The performance of the various models is assessed under both econometric and financial metrics. To this end, data are employed from major European and American implied volatility indices and the rapidly growing CBOE volatility futures market. We find that the addition of jumps is necessary to capture the evolution of implied volatility indices under both metrics. Mean reversion is of second-order importance though. The results are consistent across the various metrics, markets, and construction methodologies.
Related Topics
Social Sciences and Humanities
Economics, Econometrics and Finance
Economics and Econometrics
Authors
George Dotsis, Dimitris Psychoyios, George Skiadopoulos,