Artikel
How does the volatility of volatility depend on volatility?
We investigate the state dependence of the variance of the instantaneous variance of the S&P 500 index empirically. Time-series analysis of realized variance over a 20-year period shows strong evidence of an elasticity of variance of the variance parameter close to that of a log-normal model, albeit with an empirical autocorrelation function that one-factor diffusion models fail to capture at horizons above a few weeks. When studying option market behavior (in-sample pricing as well as out-of-sample pricing and hedging over the period 2004-2019), messages are mixed, but systematic, model-wise. The log-normal but drift-free SABR (stochastic-alpha-beta-rho) model performs best for short-term options (times-to-expiry of three months and below), the Heston model-in which variance is stationary but not log-normal-is superior for long-term options, and a mixture of the two models does not lead to improvements.
- Sprache
-
Englisch
- Erschienen in
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Journal: Risks ; ISSN: 2227-9091 ; Volume: 8 ; Year: 2020 ; Issue: 2 ; Pages: 1-18 ; Basel: MDPI
- Klassifikation
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Wirtschaft
- Thema
-
stochastic volatility
elasticity of variance of variance
Heston
SABR
- Ereignis
-
Geistige Schöpfung
- (wer)
-
Rømer, Sigurd Emil
Poulsen, Rolf
- Ereignis
-
Veröffentlichung
- (wer)
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MDPI
- (wo)
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Basel
- (wann)
-
2020
- DOI
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doi:10.3390/risks8020059
- Handle
- Letzte Aktualisierung
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10.03.2025, 11:42 MEZ
Datenpartner
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. Bei Fragen zum Objekt wenden Sie sich bitte an den Datenpartner.
Objekttyp
- Artikel
Beteiligte
- Rømer, Sigurd Emil
- Poulsen, Rolf
- MDPI
Entstanden
- 2020
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