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Level Shifts in Volatility and the Implied-Realized Volatility Relation

Publikation: Working paper/Preprint › Working paper › Forskning

Standard

Level Shifts in Volatility and the Implied-Realized Volatility Relation. / Christensen, Bent Jesper; de Magistris, Paolo Santucci.
Aarhus: Institut for Økonomi, Aarhus Universitet, 2010.

Publikation: Working paper/Preprint › Working paper › Forskning

Harvard

Christensen, BJ & de Magistris, PS 2010 'Level Shifts in Volatility and the Implied-Realized Volatility Relation' Institut for Økonomi, Aarhus Universitet, Aarhus.

APA

Christensen, B. J., & de Magistris, P. S. (2010). Level Shifts in Volatility and the Implied-Realized Volatility Relation. Institut for Økonomi, Aarhus Universitet.

CBE

Christensen BJ, de Magistris PS. 2010. Level Shifts in Volatility and the Implied-Realized Volatility Relation. Aarhus: Institut for Økonomi, Aarhus Universitet.

MLA

Christensen, Bent Jesper og Paolo Santucci de Magistris Level Shifts in Volatility and the Implied-Realized Volatility Relation. Aarhus: Institut for Økonomi, Aarhus Universitet. 2010., 38 s.

Vancouver

Christensen BJ, de Magistris PS. Level Shifts in Volatility and the Implied-Realized Volatility Relation. Aarhus: Institut for Økonomi, Aarhus Universitet. 2010.

Author

Christensen, Bent Jesper ; de Magistris, Paolo Santucci. / Level Shifts in Volatility and the Implied-Realized Volatility Relation. Aarhus : Institut for Økonomi, Aarhus Universitet, 2010.

Bibtex

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title = "Level Shifts in Volatility and the Implied-Realized Volatility Relation",
abstract = "We propose a simple model in which realized stock market return volatility and implied volatility backed out of option prices are subject to common level shifts corresponding to movements between bull and bear markets. The model is estimated using the Kalman filter in a generalization to the multivariate case of the univariate level shift technique by Lu and Perron (2008). An application to the S&P500 index and a simulation experiment show that the recently documented empirical properties of strong persistence in volatility and forecastability of future realized volatility from current implied volatility, which have been interpreted as long memory (or fractional integration) in volatility and fractional cointegration between implied and realized volatility, are accounted for by occasional common level shifts.",
keywords = "Common level shifts, fractional cointegration, fractional VECM, implied volatility, long memory, options, realized volatility.",
author = "Christensen, {Bent Jesper} and {de Magistris}, {Paolo Santucci}",
year = "2010",
language = "English",
publisher = "Institut for {\O}konomi, Aarhus Universitet",
type = "WorkingPaper",
institution = "Institut for {\O}konomi, Aarhus Universitet",

}

RIS

TY - UNPB

T1 - Level Shifts in Volatility and the Implied-Realized Volatility Relation

AU - Christensen, Bent Jesper

AU - de Magistris, Paolo Santucci

PY - 2010

Y1 - 2010

N2 - We propose a simple model in which realized stock market return volatility and implied volatility backed out of option prices are subject to common level shifts corresponding to movements between bull and bear markets. The model is estimated using the Kalman filter in a generalization to the multivariate case of the univariate level shift technique by Lu and Perron (2008). An application to the S&P500 index and a simulation experiment show that the recently documented empirical properties of strong persistence in volatility and forecastability of future realized volatility from current implied volatility, which have been interpreted as long memory (or fractional integration) in volatility and fractional cointegration between implied and realized volatility, are accounted for by occasional common level shifts.

AB - We propose a simple model in which realized stock market return volatility and implied volatility backed out of option prices are subject to common level shifts corresponding to movements between bull and bear markets. The model is estimated using the Kalman filter in a generalization to the multivariate case of the univariate level shift technique by Lu and Perron (2008). An application to the S&P500 index and a simulation experiment show that the recently documented empirical properties of strong persistence in volatility and forecastability of future realized volatility from current implied volatility, which have been interpreted as long memory (or fractional integration) in volatility and fractional cointegration between implied and realized volatility, are accounted for by occasional common level shifts.

KW - Common level shifts, fractional cointegration, fractional VECM, implied volatility, long memory, options, realized volatility.

M3 - Working paper

BT - Level Shifts in Volatility and the Implied-Realized Volatility Relation

PB - Institut for Økonomi, Aarhus Universitet

CY - Aarhus

ER -