Leverage Effect Volatility Feedback And Self Exciting Market Disruptions

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Leverage Effect, Volatility Feedback, and Self-Exciting Market Disruptions

Author : Peter Carr
Publisher :
ISBN 13 :
Total Pages : 66 pages
Book Rating : 4.:/5 (129 download)

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Book Synopsis Leverage Effect, Volatility Feedback, and Self-Exciting Market Disruptions by : Peter Carr

Download or read book Leverage Effect, Volatility Feedback, and Self-Exciting Market Disruptions written by Peter Carr and published by . This book was released on 2017 with total page 66 pages. Available in PDF, EPUB and Kindle. Book excerpt: The Samp;P 500 index return interacts negatively with its volatility. This paper traces the negative interaction to three distinct economic channels and proposes to disentangle the relative contribution of each channel using Samp;P 500 index options. First, equity volatility increases proportionally with the level of financial leverage, the variation of which is dictated by managerial decisions on a company's capital structure based on economic conditions. Second, irrespective of financial leverage, a positive shock to business risk increases the cost of capital and reduces the valuation of future cash flows, generating an instantaneous negative correlation between asset returns and asset volatility. Finally, large, negative market disruptions often generate self-exciting behaviors. The occurrence of one negative disruption induces more disruptions to follow, thus raising market volatility. Model estimation highlights the information in the large cross-section of equity index options in identifying the economic channels underlying the variations of the equity index and its volatility.

Leverage and Volatility Feedback Effects in High-Frequency Data

Author : Tim Bollerslev
Publisher :
ISBN 13 :
Total Pages : 34 pages
Book Rating : 4.:/5 (129 download)

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Book Synopsis Leverage and Volatility Feedback Effects in High-Frequency Data by : Tim Bollerslev

Download or read book Leverage and Volatility Feedback Effects in High-Frequency Data written by Tim Bollerslev and published by . This book was released on 2008 with total page 34 pages. Available in PDF, EPUB and Kindle. Book excerpt: We examine the relationship between volatility and past and future returns in high-frequency equity market data. Consistent with a prolonged leverage effect, we find the correlations between absolute high-frequency returns and current and past high-frequency returns to be significantly negative for several days, while the reverse cross-correlations between absolute returns and future returns are generally negligible. Based on a simple aggregation formula, we demonstrate how the high-frequency data may similarly be used in more effectively assessing volatility asymmetries over longer daily return horizons. Motivated by the striking cross-correlation patterns uncovered in the high-frequency data, we investigate the ability of some popular continuous-time stochastic volatility models for explaining the observed asymmetries. Our results clearly highlight the importance of allowing for multiple latent volatility factors at very fine time scales in order to adequately describe and understand the patterns in the data.

Is the 'Leverage Effect' a Leverage Effect?

Author : Stephen Figlewski
Publisher :
ISBN 13 :
Total Pages : 40 pages
Book Rating : 4.:/5 (129 download)

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Book Synopsis Is the 'Leverage Effect' a Leverage Effect? by : Stephen Figlewski

Download or read book Is the 'Leverage Effect' a Leverage Effect? written by Stephen Figlewski and published by . This book was released on 2008 with total page 40 pages. Available in PDF, EPUB and Kindle. Book excerpt: The quot;leverage effectquot; refers to the well-established relationship between stock returns and both implied and realized volatility: volatility increases when the stock price falls. A standard explanation ties the phenomenon to the effect a change in market valuation of a firm's equity has on the degree of leverage in its capital structure, with an increase in leverage producing an increase in stock volatility. We use both returns and directly measured leverage to examine this hypothetical explanation for the quot;leverage effectquot; as it applies to the individual stocks in the Samp;P100 (OEX) index, and to the index itself. We find a strong quot;leverage effectquot; associated with falling stock prices, but also numerous anomalies that call into question leverage changes as the explanation. These include the facts that the effect is much weaker or nonexistent when positive stock returns reduce leverage; it is too small with measured leverage for individual firms, but much too large for OEX implied volatilities; the volatility change associated with a given change in leverage seems to die out over a few months; and there is no apparent effect on volatility when leverage changes because of a change in outstanding debt or shares, only when stock prices change. In short, our evidence suggests that the quot;leverage effectquot; is really a quot;down market effectquot; that may have little direct connection to firm leverage.

Continuous Time Processes for Finance

Author : Donatien Hainaut
Publisher : Springer Nature
ISBN 13 : 3031063619
Total Pages : 359 pages
Book Rating : 4.0/5 (31 download)

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Book Synopsis Continuous Time Processes for Finance by : Donatien Hainaut

Download or read book Continuous Time Processes for Finance written by Donatien Hainaut and published by Springer Nature. This book was released on 2022-08-25 with total page 359 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book explores recent topics in quantitative finance with an emphasis on applications and calibration to time-series. This last aspect is often neglected in the existing mathematical finance literature while it is crucial for risk management. The first part of this book focuses on switching regime processes that allow to model economic cycles in financial markets. After a presentation of their mathematical features and applications to stocks and interest rates, the estimation with the Hamilton filter and Markov Chain Monte-Carlo algorithm (MCMC) is detailed. A second part focuses on self-excited processes for modeling the clustering of shocks in financial markets. These processes recently receive a lot of attention from researchers and we focus here on its econometric estimation and its simulation. A chapter is dedicated to estimation of stochastic volatility models. Two chapters are dedicated to the fractional Brownian motion and Gaussian fields. After a summary of their features, we present applications for stock and interest rate modeling. Two chapters focuses on sub-diffusions that allows to replicate illiquidity in financial markets. This book targets undergraduate students who have followed a first course of stochastic finance and practitioners as quantitative analyst or actuaries working in risk management.

The Leverage Effect in Stochastic Volatility

Author : Amaan Mehrabian
Publisher :
ISBN 13 :
Total Pages : pages
Book Rating : 4.:/5 (841 download)

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Book Synopsis The Leverage Effect in Stochastic Volatility by : Amaan Mehrabian

Download or read book The Leverage Effect in Stochastic Volatility written by Amaan Mehrabian and published by . This book was released on 2012 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: A striking empirical feature of many financial time series is that when the price drops, the future volatility increases. This negative correlation between the financial return and future volatility processes was initially addressed in Black 76 and explained based on financial leverage, or a firm's debt-to-equity ratio: when the price drops, financial leverage increases, the firm becomes riskier, and hence, the future expected volatility increases. The phenomenon is, therefore, traditionally been named the leverage effect. In a discrete time Stochastic Volatility (SV) model framework, the leverage effect is often modelled by a negative correlation between the innovation processes of return and volatility equations. These models can be represented as state space models in which the returns and the volatilities are considered as the observed and the latent state variables respectively. Including the leverage effect in the SV model not only results in a better fit ...

The Leverage Effect in Financial Markets

Author : Jean-Philippe Bouchaud
Publisher :
ISBN 13 :
Total Pages : 12 pages
Book Rating : 4.:/5 (129 download)

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Book Synopsis The Leverage Effect in Financial Markets by : Jean-Philippe Bouchaud

Download or read book The Leverage Effect in Financial Markets written by Jean-Philippe Bouchaud and published by . This book was released on 2001 with total page 12 pages. Available in PDF, EPUB and Kindle. Book excerpt: We investigate quantitatively the so-called leverage effect, which corresponds to a negative correlation between past returns and future volatility. For individual stocks, this correlation is moderate and decays exponentially over 50 days, while for stock indices, it is much stronger but decays faster. For individual stocks, the magnitude of this correlation has a universal value that can be rationalized in terms of a new 'retarded' model which interpolates between a purely additive and a purely multiplicative stochastic process. For stock indices a specific market panic phenomenon seems to be necessary to account for the observed amplitude of the effect.

Handbook Of Financial Econometrics, Mathematics, Statistics, And Machine Learning (In 4 Volumes)

Author : Cheng Few Lee
Publisher : World Scientific
ISBN 13 : 9811202400
Total Pages : 5053 pages
Book Rating : 4.8/5 (112 download)

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Book Synopsis Handbook Of Financial Econometrics, Mathematics, Statistics, And Machine Learning (In 4 Volumes) by : Cheng Few Lee

Download or read book Handbook Of Financial Econometrics, Mathematics, Statistics, And Machine Learning (In 4 Volumes) written by Cheng Few Lee and published by World Scientific. This book was released on 2020-07-30 with total page 5053 pages. Available in PDF, EPUB and Kindle. Book excerpt: This four-volume handbook covers important concepts and tools used in the fields of financial econometrics, mathematics, statistics, and machine learning. Econometric methods have been applied in asset pricing, corporate finance, international finance, options and futures, risk management, and in stress testing for financial institutions. This handbook discusses a variety of econometric methods, including single equation multiple regression, simultaneous equation regression, and panel data analysis, among others. It also covers statistical distributions, such as the binomial and log normal distributions, in light of their applications to portfolio theory and asset management in addition to their use in research regarding options and futures contracts.In both theory and methodology, we need to rely upon mathematics, which includes linear algebra, geometry, differential equations, Stochastic differential equation (Ito calculus), optimization, constrained optimization, and others. These forms of mathematics have been used to derive capital market line, security market line (capital asset pricing model), option pricing model, portfolio analysis, and others.In recent times, an increased importance has been given to computer technology in financial research. Different computer languages and programming techniques are important tools for empirical research in finance. Hence, simulation, machine learning, big data, and financial payments are explored in this handbook.Led by Distinguished Professor Cheng Few Lee from Rutgers University, this multi-volume work integrates theoretical, methodological, and practical issues based on his years of academic and industry experience.

The Risk-return Tradeoff and Leverage Effect in a Stochastic Volatility-in-mean Model

Author : Bent Jesper Christensen
Publisher :
ISBN 13 :
Total Pages : pages
Book Rating : 4.:/5 (837 download)

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Book Synopsis The Risk-return Tradeoff and Leverage Effect in a Stochastic Volatility-in-mean Model by : Bent Jesper Christensen

Download or read book The Risk-return Tradeoff and Leverage Effect in a Stochastic Volatility-in-mean Model written by Bent Jesper Christensen and published by . This book was released on 2010 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:

Engineering Investment Process

Author : Florian Ielpo
Publisher : Elsevier
ISBN 13 : 0081011482
Total Pages : 432 pages
Book Rating : 4.0/5 (81 download)

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Book Synopsis Engineering Investment Process by : Florian Ielpo

Download or read book Engineering Investment Process written by Florian Ielpo and published by Elsevier. This book was released on 2017-03-22 with total page 432 pages. Available in PDF, EPUB and Kindle. Book excerpt: Engineering Investment Process: Making Value Creation Repeatable explores the quantitative steps of a financial investment process. The authors study how these steps are articulated in order to make any value creation, whatever the asset class, consistent and robust. The discussion includes factors, portfolio allocation, statistical and economic backtesting, but also the influence of negative rates, dynamical trading, state-space models, stylized facts, liquidity issues, or data biases. Besides the quantitative concepts detailed here, the reader will find useful references to other works to develop an in-depth understanding of an investment process. - Blends academic research with practical experience from quants, fund managers, and economists - Puts financial mathematics and econometrics in their rightful place - Presents useful information that will increase the reader's understanding of markets - Clearly provides both the global framework, the investment process, and the useful econometric and financial tools that help in its construction - Includes efficient tools taken from up-to-date econometric and financial techniques

Credit Risk Frontiers

Author : Tomasz Bielecki
Publisher : John Wiley & Sons
ISBN 13 : 1118003837
Total Pages : 770 pages
Book Rating : 4.1/5 (18 download)

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Book Synopsis Credit Risk Frontiers by : Tomasz Bielecki

Download or read book Credit Risk Frontiers written by Tomasz Bielecki and published by John Wiley & Sons. This book was released on 2011-02-14 with total page 770 pages. Available in PDF, EPUB and Kindle. Book excerpt: A timely guide to understanding and implementing credit derivatives Credit derivatives are here to stay and will continue to play a role in finance in the future. But what will that role be? What issues and challenges should be addressed? And what lessons can be learned from the credit mess? Credit Risk Frontiers offers answers to these and other questions by presenting the latest research in this field and addressing important issues exposed by the financial crisis. It covers this subject from a real world perspective, tackling issues such as liquidity, poor data, and credit spreads, as well as the latest innovations in portfolio products and hedging and risk management techniques. Provides a coherent presentation of recent advances in the theory and practice of credit derivatives Takes into account the new products and risk requirements of a post financial crisis world Contains information regarding various aspects of the credit derivative market as well as cutting edge research regarding those aspects If you want to gain a better understanding of how credit derivatives can help your trading or investing endeavors, then Credit Risk Frontiers is a book you need to read.

Stochastic Equity Volatility Related to the Leverage Effect

Author : Alain Bensoussan
Publisher :
ISBN 13 : 9782854185287
Total Pages : 23 pages
Book Rating : 4.1/5 (852 download)

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Book Synopsis Stochastic Equity Volatility Related to the Leverage Effect by : Alain Bensoussan

Download or read book Stochastic Equity Volatility Related to the Leverage Effect written by Alain Bensoussan and published by . This book was released on 1994 with total page 23 pages. Available in PDF, EPUB and Kindle. Book excerpt: Résumé en anglais

Extreme Asymmetric Volatility, Leverage, Feedback and Asset Prices

Author : Sofiane Aboura
Publisher :
ISBN 13 :
Total Pages : 62 pages
Book Rating : 4.:/5 (13 download)

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Book Synopsis Extreme Asymmetric Volatility, Leverage, Feedback and Asset Prices by : Sofiane Aboura

Download or read book Extreme Asymmetric Volatility, Leverage, Feedback and Asset Prices written by Sofiane Aboura and published by . This book was released on 2015 with total page 62 pages. Available in PDF, EPUB and Kindle. Book excerpt: Asymmetric volatility in equity markets has been widely documented in finance, where two competing explanations, as considered in Bekaert and Wu (2000), are the financial leverage and the volatility feedback hypothesis. We explicitly test for the role of both hypotheses in explaining extreme daily U.S. equity market movements during the period January 1990 to September 2008. To this aim, we examine asymmetric volatility based on a novel model of market returns, implied market volatility and volatility of volatility. We then test for extreme asymmetry and the distinct predictions of both hypotheses. Our results document significant extreme asymmetric volatility. This effect is contemporaneous, consistent with both hypotheses, and it is important for large market declines. We further derive aggregate asset pricing implications under extreme volatility feedback. Given our results, asymmetric volatility, which includes the effect of volatility feedback at extreme levels, is shown to play an important role in explaining substantial equity market declines.

Empirical Evidence of the Leverage Effect in a Stochastic Volatility Model

Author : Dinghai Xu
Publisher :
ISBN 13 :
Total Pages : 26 pages
Book Rating : 4.:/5 (837 download)

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Book Synopsis Empirical Evidence of the Leverage Effect in a Stochastic Volatility Model by : Dinghai Xu

Download or read book Empirical Evidence of the Leverage Effect in a Stochastic Volatility Model written by Dinghai Xu and published by . This book was released on 2010 with total page 26 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Leverage Effect Breakdowns & Flight from Risky Assets

Author : Stephen Matteo Miller
Publisher :
ISBN 13 :
Total Pages : 20 pages
Book Rating : 4.:/5 (13 download)

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Book Synopsis Leverage Effect Breakdowns & Flight from Risky Assets by : Stephen Matteo Miller

Download or read book Leverage Effect Breakdowns & Flight from Risky Assets written by Stephen Matteo Miller and published by . This book was released on 2015 with total page 20 pages. Available in PDF, EPUB and Kindle. Book excerpt: Though part of “market lore,” Black (1976) first reported the inverse relationship between price and volatility, calling it the “leverage effect.” Without providing evidence, Black (1988) claims that in the months leading up to the October '87 Crash the relationship changed: price and volatility both rose. Using daily data for the Old VIX, derived from S&P 100 Index option market prices, to estimate intra-quarterly regressions of implied volatility against price from Q2 1986 - Q1 2012, I can verify Black's claim for the October '87 Crash, and interestingly, for subsequent periods of crisis. I then analyze several Constant Elasticity of Variance optimal portfolio rules, which include the leverage effect, to show the elasticity sign switch implies that investors reduce their risky asset holdings to zero.

A Study About the Existence of the Leverage Effect in Stochastic Volatility Models

Author : Ionut Florescu
Publisher :
ISBN 13 :
Total Pages : 25 pages
Book Rating : 4.:/5 (13 download)

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Book Synopsis A Study About the Existence of the Leverage Effect in Stochastic Volatility Models by : Ionut Florescu

Download or read book A Study About the Existence of the Leverage Effect in Stochastic Volatility Models written by Ionut Florescu and published by . This book was released on 2018 with total page 25 pages. Available in PDF, EPUB and Kindle. Book excerpt: The empirical relationship between the return of an asset and the volatility of the asset has been well documented in the financial literature. Named the leverage e ffect or sometimes risk-premium effect, it is observed in real data that, when the return of the asset decreases, the volatility increases and vice-versa.Consequently, it is important to demonstrate that any formulated model for the asset price is capable to generate this eff ect observed in practice. Furthermore, we need to understand the conditions on the parameters present in the model that guarantee the apparition of the leverage effect. In this paper we analyze two general speci cations of stochastic volatility models and their capability of generating the perceived leverage effect. We derive conditions for the apparition of leverage e ffect in both of these stochastic volatility models. We exemplify using stochastic volatility models used in practice and we explicitly state the conditions for the existence of the leverage effect in these examples.

A Threshold Model for Local Volatility: Evidence of Leverage and Mean Reversion Effects on Historical Data

Author : Antoine Lejay
Publisher :
ISBN 13 :
Total Pages : pages
Book Rating : 4.:/5 (13 download)

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Book Synopsis A Threshold Model for Local Volatility: Evidence of Leverage and Mean Reversion Effects on Historical Data by : Antoine Lejay

Download or read book A Threshold Model for Local Volatility: Evidence of Leverage and Mean Reversion Effects on Historical Data written by Antoine Lejay and published by . This book was released on 2017 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: In financial markets, low prices are generally associated with high volatilities and vice-versa, this well known stylized fact usually being referred to as leverage effect. We propose a local volatility model, given by a stochastic differential equation with piecewise constant coefficients, which accounts of leverage and mean-reversion effects in the dynamics of the prices. This model exhibits a regime switch in the dynamics accordingly to a certain threshold. It can be seen as a continuous time version of the Self-Exciting Threshold Autoregressive (SETAR) model. We propose an estimation procedure for the volatility and drift coefficients as well as for the threshold level. Tests are performed on the daily prices of 21 assets. They show empirical evidence for leverage and mean-reversion effects, consistent with the results in the literature.

The Economics of Commodity Markets

Author : Julien Chevallier
Publisher : John Wiley & Sons
ISBN 13 : 1119945402
Total Pages : 373 pages
Book Rating : 4.1/5 (199 download)

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Book Synopsis The Economics of Commodity Markets by : Julien Chevallier

Download or read book The Economics of Commodity Markets written by Julien Chevallier and published by John Wiley & Sons. This book was released on 2013-06-19 with total page 373 pages. Available in PDF, EPUB and Kindle. Book excerpt: As commodity markets have continued their expansion an extensive and complex financial industry has developed to service them. This industry includes hundreds of participating firms, including asset managers, brokers, consultants, verification agencies and a myriad of other institutions. Universities and other training institutions have responded to this rapid expansion of commodity markets as well as their substantial future growth potential by launching specialized courses on the subject. The Economics of Commodity Markets attempts to bridge the gap between academics and working professionals by way of a textbook that is both theoretically informative and practical. Based in part on the authors’ teaching experience of commodity finance at the University Paris Dauphine, the book covers all important commodity markets topics and includes coverage of recent topics such as financial applications and intuitive economic reasoning. The book is composed of three parts that cover: commodity market dynamics, commodities and the business cycle, and commodities and fundamental value. The key original approach to the subject matter lies in a shift away from the descriptive to the econometric analysis of commodity markets. Information on market trends of commodities is presented in the first part, with a strong emphasis on the quantitative treatment of that information in the remaining two parts of the book. Readers are provided with a clear and succinct exposition of up-to-date financial economic and econometric methods as these apply to commodity markets. In addition a number of useful empirical applications are introduced and discussed. This book is a self-contained offering, discussing all key methods and insights without descending into superfluous technicalities. All explanations are structured in an accessible manner, permitting any reader with a basic understanding of mathematics and finance to work their way through all parts of the book without having to resort to external sources.