Abstract

http://ssrn.com/abstract=2013362
 
 

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Construction of Volatility Indices Using a Multinomial Tree Approximation Method


Dragos Bozdog


Stevens Institute of Technology

Ionut Florescu


Stevens Institute of Technology

Khaldoun Khashanah


Stevens Institute of Technology

Hongwei Qiu


Stevens Institute of Technology

February 16, 2011

HANDBOOK OF MODELING HIGH-FREQUENCY DATA IN FINANCE, Frederi G. Viens, Maria C. Mariani and Ionut Florescu, eds., December 2011

Abstract:     
This paper introduces a new methodology for an alternative calculation of market volatility index based on a multinomial tree approximation of a stochastic volatility model. The estimation is performed by constructing synthetic options with consistent properties. Several variants of this index are calculated and their performance is analyzed over the whole dataset and over a subset of data corresponding to particular market events. The proposed index is compared with the VIX produced by CBOE.

Number of Pages in PDF File: 24

Keywords: volatility, multinomial tree

JEL Classification: C63

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Date posted: March 4, 2012  

Suggested Citation

Bozdog, Dragos and Florescu, Ionut and Khashanah, Khaldoun and Qiu, Hongwei, Construction of Volatility Indices Using a Multinomial Tree Approximation Method (February 16, 2011). HANDBOOK OF MODELING HIGH-FREQUENCY DATA IN FINANCE, Frederi G. Viens, Maria C. Mariani and Ionut Florescu, eds., December 2011 . Available at SSRN: http://ssrn.com/abstract=2013362

Contact Information

Dragos Bozdog (Contact Author)
Stevens Institute of Technology ( email )
Hoboken, NJ 07030
United States
Ionut Florescu
Stevens Institute of Technology ( email )
Castle Point on the Hudson
Hoboken, NJ 07030
United States
Khaldoun Khashanah
Stevens Institute of Technology ( email )
Hoboken, NJ 07030
United States
Hongwei Qiu
Stevens Institute of Technology ( email )
Hoboken, NJ 07030
United States
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