Open AccessVolatility Harvesting: Extracting Return from Randomness
Author(s) -
Witte J. H.
Publication year - 2016
Publication title -
wilmott
Language(s) - English
Resource type - Journals
eISSN - 1541-8286
pISSN - 1540-6962
DOI - 10.1002/wilm.10511
Subject(s) - volatility (finance) , econometrics , randomness , gaussian , stochastic volatility , computer science , realized variance , economics , statistical physics , mathematics , statistics , physics , quantum mechanics
Studying binomial and Gaussian return dynamics in discrete time, we show how excess volatility can be traded to create growth. We test our results on real‐world data to confirm the observed model phenomena while also highlighting the implicit risks.