On Basic Price Model and Volatility in Multiple Frequencies

4 Pages Posted: 17 Jan 2012

See all articles by Ali Akansu

Ali Akansu

New Jersey Institute of Technology

Mustafa Torun

New Jersey Institute of Technology

Date Written: June 28, 2011

Abstract

This paper revisits volatility and emphasizes interrelationships of risk metrics at various time horizons expressed in multiple frequencies. The basic price model defined by Black-Scholes equation and its extensions for varying variance scenarios are presented, i.e. Heston and GARCH models. Moreover, we highlight the significance of abrupt changes in the price of an asset on price modeling and volatility estimation. We extend basic price model where price jumps are taken into account as well. The proposed approach is validated by simulations, and shown that it improves volatility estimation.

Keywords: Price Models, Black-Scholes, Volatility Models, Price Jumps and Regime Change, Multiple Frequency Finance

Suggested Citation

Akansu, Ali and Torun, Mustafa, On Basic Price Model and Volatility in Multiple Frequencies (June 28, 2011). Available at SSRN: https://ssrn.com/abstract=1986829 or http://dx.doi.org/10.2139/ssrn.1986829

Ali Akansu (Contact Author)

New Jersey Institute of Technology ( email )

University Heights
Newark, NJ 07102
United States

Mustafa Torun

New Jersey Institute of Technology ( email )

University Heights
Newark, NJ 07102
United States

HOME PAGE: http://web.njit.edu/~umt2

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