Premium
Exploratory graphics for financial time series volatility
Author(s) -
Lawrance A. J.
Publication year - 2013
Publication title -
journal of the royal statistical society: series c (applied statistics)
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.205
H-Index - 72
eISSN - 1467-9876
pISSN - 0035-9254
DOI - 10.1111/rssc.12016
Subject(s) - volatility (finance) , econometrics , stochastic volatility , volatility smile , variance swap , forward volatility , volatility swap , heteroscedasticity , implied volatility , volatility risk premium , computer science , economics , finance
Summary The paper develops a framework for volatility graphics in financial time series analysis which allows exploration of the time progression of volatility and the dependence of volatility on past behaviour. It is particularly suitable for identifying volatility structure to be incorporated in specific volatility models. Plotting techniques are identified on the basis of a general time series volatility model and are illustrated on the Financial Times Stock Exchange 100‐Share Index financial time series. They are statistically validated by bootstrapping and application to simulated volatile and non‐volatile series, generated by both conditionally heteroscedastic and stochastic volatility models. An important point is that volatility can only be properly visualized and analysed for linearly uncorrelated or decorrelated series.