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Forecasting stock index volatility
Author(s) -
Bramante Riccardo,
Luigi Santamaria
Publication year - 2001
Publication title -
applied stochastic models in business and industry
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.413
H-Index - 40
eISSN - 1526-4025
pISSN - 1524-1904
DOI - 10.1002/asmb.423
Subject(s) - volatility (finance) , forward volatility , volatility swap , economics , volatility risk premium , implied volatility , econometrics , volatility smile , financial economics , stock (firearms) , stochastic volatility , index (typography) , stock market index , stock market , computer science , geography , context (archaeology) , archaeology , world wide web
Accurate volatility forecasting is the key to successful risk analysis. In fact, volatility forecasts lie at the centre of many financial systems, such as value at risk modelling and pricing of derivative securities. This paper is concerned with how to construct stock index volatility predictors using the returns histories of the stocks that define the Index. Specifically, our approach presupposes that the total volatility of the index returns can be explained by the volatility of the related components. Copyright © 2001 John Wiley & Sons, Ltd.