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Topic: Volatility (finance)


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In the News (Sun 16 Jun 19)

  
 FEN Special Report: On The Frontiers of Financial Engineering and Risk Management
Even vega hedging with the BMS model does not assure riskless profits, if only because theory suggests that the size of the vega hedge should depend on the volatility of volatility (or “volvol”) and the correlation of the volatility with the price of the underlying asset.
Empirical research typically shows that the ad hoc use of the BMS model by an options market maker to calculate delta and vega hedges is at least as good at reducing the variance of profit and loss as the use of more sophisticated approaches that explicitly model the volatility of volatility.
He is also director of the Masters program in mathematical finance at New York University’s Courant Institute, a center for research and advanced training in mathematics and computer science.
www.fenews.com /fen40/special-feature/carr.html

  
 Vega
Vega can change even if there is no change in the price of the underlying asset, this would happen if there is a change in expected volatility.
For example, if the vega of an option is -96.94 and if implied volatility were to rise by 1% then the option value would fall by $96.94.
The amount that the price of an option changes compared to a 1% change in volatility.
www.investopedia.com /terms/v/vega.asp

  
 Getting To Know The "Greeks"
Using at-the-money vega, which is –96.94, we know that for each percentage-point drop in implied volatility, a short call position will gain by $96.94.
Vega tells us approximately how much an option price will increase or decrease given an increase or decrease in the level of implied volatility.
To become a successful option trader, it is essential to understand what factors influence the price of an option, which requires learning about the so-called "Greeks" - a set of risk measures that indicate how exposed an option is to these influences: time-value decay, implied volatility and changes in the underlying price of the commodity.
investmenthouse.investopedia.com /articles/optioninvestor/02/120602.asp

  
 Amazon.com: Books: Dynamic Hedging : Managing Vanilla and Exotic Options (Wiley Finance)
He covers the behavior of the Greeks (delta, gamma, vega, theta, etc.) for vanilla options as well as behavior of exotic options, and delves into the practicalities of volatility, hedging at discontinuities, and various other topics.
vega convexity, shadow gamma, liquidity holes, expected first exit, modified theta, correlation vega, put call symmetry, vega neutrality, exploding option, forward volatility, second order option, partial delta, dynamic hedger, long gamma, expected stopping time, outperformance option, volatility weightings, gap delta, barrier options, salvation trade, gamma needs, modified rho, skew slope, contamination principle, forward delta
Modeling Derivatives in C++ (Wiley Finance) by Justin London
www.amazon.com /exec/obidos/tg/detail/-/0471152803?v=glance

  
 Global Derivatives - Quantitative Mathematics Glossary U-Z
Because the vega is the same for both calls and puts, we can show that with a substantial time to maturity remaining, the option value is highly sensitive to changes in volatility.
The vega is essentially the dollar change in the option value assuming a 1% change in the volatility of the underlying.
In the case of quantitative finance and option pricing, vega is an important concept in assessing the risks of a derivative.
www.global-derivatives.com /maths/u-z.php

  
 G. William Schwert
His paper "Why Does Stock Market Volatility Change Over Time?" won a Smith-Breeden Distinguished Paper Prize from the Journal of Finance in 1990 and his paper "Stock Market Volatility" won the Graham and Dodd Plaque from the Financial Analysts Journal in 1990.
He was an Associate Editor of the Journal of Finance from 1983-2000 and he is an Advisory Editor for the Journal of Monetary Economics.
He was the Chair of the Business and Economics Section of the American Statistical Association in 1990, and from 1987-89 he was a Director of the American Finance Association.
schwert.ssb.rochester.edu

  
 Wilmott Serving The Quantitative Finance Community Articles
Equity-to-Credit: the Death of the Implied Volatility: Finance Focus - Apr 2004
Volatility in Disguise: How to add pricing libraries for short rate models into a VaR system: Finance Focus
Finance Focus recording with Dominic Connor - C++ with Confidence
www.wilmott.com /article.cfm?id=109   (280 words)

  
 Bond (finance) - Wikipedia, the free encyclopedia
Bonds and stocks are both securities, but the difference is that stock holders own a part of the issuing company (have an equity stake), whereas bond holders are in essence lenders to the issuer.
In finance, a bond is a debt security, in which the issuer owes the holders a debt and is obliged to repay the principal and interest (the coupon).
Bonds do suffer from less day-to-day volatility than stocks, and bonds' interest payments are higher than dividend payments that the same company would generally choose to pay to its stockholders.
en.wikipedia.org /wiki/Bond_(finance)   (2875 words)

  
 Financial economics - Wikipedia, the free encyclopedia
The top 3 finance journals are Journal of Finance, Review of Financial Studies and the Journal of Financial Economics.
Stock options are a classic form of derivative -- Fischer Black, Myron S. Scholes, and Robert C. Merton did ground-breaking work in the early 1970s on the determination of stock option prices on the basis of the underlying stock's price and volatility.
In recent decades, a lot of work has concerned itself with the prices of derivatives, financial instruments that derive their value from other, underlying, assets.
en.wikipedia.org /wiki/Financial_economics   (435 words)

  
 Volatility - Wikipedia, the free encyclopedia
The concept of volatility in theories of finance
Volatility is often viewed as a negative in that it represents uncertainty and risk.
Volatility is the standard deviation of the change in value of a financial instrument with a specific time horizon.
en.wikipedia.org /wiki/Volatility   (435 words)

  
 TheManageMentor - Finance - Warrants
This would require calculating the value of the share price of the notional firm and also adjusting the volatility (standard deviation) of its equity to reflect the balance sheet of the notional firm.
Warrant valuation is done keeping in view the fact that the exercise of the warrant results in an increase in the number of shares outstanding.
Warrants are typically of a shorter duration, are detachable from the securities from which they are issued, and carry an exercise price, which requires a cash payment when used.
www.themanagementor.com /enlightenmentorareas/finance/FM/warrents.htm   (432 words)

  
 FINANCE
Companies used both recourse and nonrecourse debt to finance these unregulated activities with arrangements such as project financing debt, hybrid securities, and synthetic leases.
Rating agencies are more closely scrutinizing the energy trading business as risks come into focus, including the volatility of power markets, heightened credit risk, and high demands of counter-party risk.
And analysts are focusing on the effective leverage for both on- and off-balance sheet financing.
www.eei.org /magazine/editorial_content/nonav_stories/2002-05-01-finance.htm   (1213 words)

  
 Finance & Development, March 2003 - Should MENA Countries Float or Peg?
There are, of course, dissenters who argue in favor of intermediate regimes, stressing the difficulty developing countries have in meeting the preconditions for a successful float and the negative impact of excessive exchange rate volatility on investment and growth.
The central bank operates the managed float primarily by intervening in the foreign exchange market, because the country has virtually no money markets and the financial rates of return (equivalent to interest rates) are controlled.
Following the recent move to a floating regime, the exchange rate depreciated by 20 percent, and the availability of foreign exchange in the formal market improved.
www.imf.org /external/pubs/ft/fandd/2003/03/jbil.htm   (2397 words)

  
 Financial Publications
Derman, E. and I Kani, "Stochastic Implied Trees: Arbitrage Pricing with Stochastic Term and Strike Structure of Volatility", International Journal of Theoretical and Applied Finance, 1(1) Jan. 1998, pp.61-110.
The Volatility Smile and Its Implied Tree Emanuel Derman and Iraj Kani.
Implied Trinomial Trees of the Volatility Smile Emanuel Derman, Iraj Kani and Neil Chriss.
www.ederman.com /emanuelderman/RelatedSites/FinancialPublications.html   (840 words)

  
 Derivatives Bookshop : Volatility by Robert A. Jarrow
Implied Trinomial Trees of the Volatility Smile, by Emanuel Derman, Iraj Kani and Neil Chriss
This book is a collection of readings on stochastic volatility for stocks, stock indexes, foreign currencies, interest rates and commodities.
A Closed-Form Solution for Options with Stochastic Volatility with Applications to Bond and Currency Options, by Steven Heston
books.global-investor.com /books/9488.htm?ginPtrCode=18192   (705 words)

  
 Guardian Unlimited The Guardian Mind over investment matters
Taking a step beyond the fashionable discipline of behavioural finance, psychoanalytical tools are now being employed in the search for investment enlightenment.
The more modern science of behavioural finance seeks to apply some logic and structure to such observations of investment crowd behaviour.
Blair's missing the point on financing renewables: fossil volatility costs more
www.guardian.co.uk /business/story/0,3604,1189260,00.html   (705 words)

  
 Behavioural Finance Bibliography
"Volume, Volatility, Price and Profit When All Traders Are Above Average." Journal of Finance, vol.
To fully understand Behavioural Finance, one must survey the literature.
Grossman, Sanford J. "On the Efficiency of Competitive Stock Markets Where Traders Have Diverse Information." Journal of Finance, vol.
www.finpipe.com /bfbib.htm   (705 words)

  
 Behavioral Finance
Aus der neuen Sicht des Finance ergeben sich zudem vielfältige Anwendungsmöglichkeiten, welche im Portfoliomanagement umgesetzt werden können.
While we observe a small positive impact of our interest policy on bubbles, the policy also strongly increases market volatility.
Während das traditionelle Finance auf der vollkommenen Rationalität der Entscheidungsträger
www.evolutionaryfinance.ch /behaviouralfinance/papers   (417 words)

  
 Amazon.com: Collateralized Debt Obligations and Structured Finance : New Developments in Cash and Synthetic Securitization: Books: Janet M. Tavakoli
She also debunks the term CDO "arbitrage." This "arbitrage" is not risk-free for the investment banks who arrange these deals, but using this term gives comfort to bank managers who may be unaware of the hidden volatility in their trading portfolios.
For investors who need to know more about structured finance including new synthetic securitizations using credit derivatives technology, this book is a great resource.
The overall structure and organization of the book was horrendous with stories leading nowhere and technical examples blurted out onto the page without thought to a fundamental theme or why they were offered.
www.amazon.com /exec/obidos/tg/detail/-/0471462209?v=glance   (1660 words)

  
 'Halal' hedge fund set to boost Islamic finance world IIFF
The Islamic finance industry can expect a multi-million dollar boost with the introduction of the world's first 'halal' hedge fund, details of which are to be unveiled next month.
The primary aim of hedge funds is to reduce volatility and risk while attempting to preserve capital and deliver positive returns under all market conditions.
Targeting an asset base of $500 million with a minimum investment of $10 million, the hedge fund is challenging traditional thinking in Islamic finance which requires financial products to be compliant to Shariah law.
www.ameinfo.com /17608.html   (1084 words)

  
 Ronnie Sircar
From the Implied Volatility Skew to a Robust Correction to Black-Scholes American Option Prices, International Journal of Theoretical and Applied Finance, vol 4, No. 4 (2001), pages 651-75.
Stochastic Volatility Effects on Defaultable Bonds, May 2004, revised October 2005.
Asymptotics of a Two-Scale Stochastic Volatility Model, In "Equations aux derivees partielles et applications" in honour of Jacques-Louis Lions, Gauthier-Villars, May 1998, pages 517-26.
www.princeton.edu /%7Esircar   (453 words)

  
 Amazon.com: Forecasting Volatility: Theory & Practice: Books: John Knight,S. Satchell
A Practical Guide to Forecasting Financial Market Volatility (The Wiley Finance Series) by Ser-Huang Poon
Volatility modelling has been a very active area of research in recent years.
'Forecasting Volatility in the Financial Markets' assumes that the reader has a firm grounding in the key principles and methods of understanding volatility measurement and builds on that knowledge to detail cutting edge modelling and forecasting techniques.
www.amazon.com /exec/obidos/tg/detail/-/0750640812?v=glance   (944 words)

  
 SSRN-References Cited 'Model Uncertainty and its Impact on the Pricing of Derivative Instruments' by Rama Cont
Lyons, T.J. (1995) Uncertain volatility and the risk free synthesis of derivatives, Applied mathematical finance, 2, 117-133.
Avellaneda M., Levy A. & Paras, A. (1995): Pricing and hedging derivative securities in markets with uncertain volatilities, Applied Mathematical Finance, 2, 73-88.
Peng, S. (2004) Nonlinear expectations and dynamic risk measures, in: Stochastic methods in finance, Lecture Notes in Mathematics Vol.
papers.ssrn.com /sol3/RefUsedIn.cfm?abid=562721   (755 words)

  
 SSRN-Option Repricing and Incentive Realignment by Jeffrey Coles, Naveen Daniel, Lalitha Naveen
A sharp decline in stock price, by reducing the sensitivity of executive pay to firm performance (delta) and, in many cases, increasing sensitivity of executive pay to stock-return volatility (vega), can cause managerial incentives to depart from optimal or target levels.
Email address for NAVEEN D. Georgia State University - Department of Finance
NAVEEN D. Georgia State University - Department of Finance
papers.ssrn.com /sol3/papers.cfm?abstract_id=497142   (755 words)

  
 Yale School of Management: Yale School of Management Debuts Professor Robert Shiller's New Book
In Irrational Exuberance, Robert Shiller cautioned that society's obsession with the stock market was fueling the volatility that has since made a roller coaster of the financial system.
The Yale School of Management's International Center for Finance (ICF) focuses its research on the critical issues facing the global financial community, including topics such as the development of capital markets, the functioning of the business corporation, how investment decisions are made, and how security prices evolve.
Throughout the year, the ICF hosts conferences and seminars on a range of topics in finance.
mba.yale.edu /news_events/CMS/Articles/1604.shtml   (1063 words)

  
 Directorate for Financial and Enterprise Affairs:Department
Meanwhile, credit spreads for both investment grade and sub-investment grade borrowers continue to be compressed and volatility appears to have diminished in most market segments....
Boosting market liberalisation by reducing trade, investment and competition barriers to "best practice" levels could significantly raise GDP per head in the European Union and the United States, according to a new OECD working paper.
Collective Investment Schemes (CIS) have been one of the most significant developments in financial intermediation during the past few decades.
www.oecd.org /daf   (952 words)

  
 USATODAY.com - Europeans uneasy about volatility
The European Commission was angered by the finance ministers' November decision to let Germany and France off the hook despite repeated violations of the fiscal discipline pact that says nations using the euro have to keep deficits below 3% of gross domestic product.
The meeting is the first since the EU's head office, the European Commission, launched a legal challenge last week against all EU finance ministers over France's and Germany's high budget deficits.
Ministers were divided on the move, with Spain and the Netherlands backing the EC, while Austria's Grasser echoed French and German objections.
www.usatoday.com /money/world/2004-01-20-eufinance_x.htm   (397 words)

  
 Economist to discuss 'irrational exuberance' in Steine Lecture
In addition to teaching at Yale, Shiller serves on the academic advisory panel to the Federal Reserve Bank of New York and on the editorial boards of several journals in economics and finance.
His research on market volatility has focused both on its sources and ways society can protect itself from the consequences of market booms and busts.
Robert J. Shiller, a noted economist from Yale University, will speak on "irrational exuberance" in the stock market when he delivers the 24th annual David Steine Memorial Lecture Sept. 21 at Vanderbilt.
www.vanderbilt.edu /News/register/Sept18_00/story10.html   (281 words)

  
 Rational Exuberance - Forbes.com
The behavioral finance school disciples say such huge volatility is a sure mark of irrational, inefficient markets.
Predictability: In Irrational Exuberance, Yale's Robert Shiller takes a poke at orthodox finance by using a long time-series for the SandP 500 Composite price/earnings ratio (1881-1999) to demonstrate that a current P/E is a good predictor of real (inflation corrected) stock market returns over the next ten years.
In short, there is a very cogent orthodox finance interpretation for the P/E and real return linkage that Shiller presents.
www.forbes.com /columnists/global/2000/0612/0312068a_3.html   (918 words)

  
 Economist Shiller warns of validity of 'irrational exuberance'
He is distinguished: In 1996 his "Market Volatility and Macro Markets" won the first Paul Samuelson Award for the year's best writing on finance.
Shiller's book is a fascinating tour of insights gleaned from anthropology, sociology, psycliology and other skiens that recently have been joined to form the field known as behavior finance.
He is centrally located in the profession: trained at Massachusetts Institute of Technology, professor at Yale University, a deacon of the famous Cowles Foundation for research in economics.
www.econ.yale.edu /cowles/news/shiller/rjs_00-03-19_chict_validity.htm   (555 words)

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