From the author - This part of the book covers the dynamics of discrete-time asset price volatility. Chapter 8 summarizes five interpretations of volatility, all of which refer to the standard deviation of returns. It then reviews a variety of reasons for volatility changes, although these can only provide a ... click here for more details.
From the author - Chapter 9 defines ARCH models and provides examples based upon some of the most popular specifications. These models specify the conditional mean and the conditional variance of the next return as functions of the latest return and previous returns. They have proved to be highly successful ... click here for more details.
From the author - Chapter 10 describes more complicated ARCH models and the likelihood theory required to perform hypothesis tests about ARCH parameters. Guidance concerning model selection is included, based upon tests and diagnostic checks.
From the author - This part of the book presents methods that use option prices to learn more about future price distributions. Most option pricing models depend on assumptions about the continuous-time dynamics of asset prices. Some important continuous-time stochastic processes are defined in Chapter 13 and these are used ... click here for more details.
From the author - Chapter 16 covers methods for obtaining densities for an asset price at a later date, with a particular emphasis on densities estimated using option prices. Several methods for obtaining risk-neutral densities from options data are described. These densities assume that risk is irrelevant when future cash ... click here for more details.
From the author - Chapter 15 compares forecasts of future volatility. Forecasts derived from option-implied volatilities and intraday asset prices are particularly interesting, because they incorporate more volatility information than the historical record of daily prices and often provide superior predictions.
From the author - Chapter 6 considers several further tests of the random walk hypothesis which use a variety of methods to look for evidence that tomorrow’s return is correlated with some function of previous returns. Evidence against the random walk hypothesis is found that is statistically significant but not ... click here for more details.
From the author - This part of the book describes high-frequency prices and models in Chapter 12. The returns considered are now far more frequent than the daily returns of the preceding chapters. Many examples are discussed for returns measured over five-minute intervals. Their stylized facts include significant variations in ... click here for more details.
This introductory chapter provides an overview of the aspects of asset prices that are covered in the book: namely, dynamics, volatility, prediction and available information. A brief summary of each of the other chapters is also provided.
From the author - Option pricing models are discussed in Chapter 14 for various assumptions about volatility: constant, stochastic, or generated by anARCH model. The empirical properties of implied volatilities are discussed, these being obtained from observed asset and option prices by using the Black–Scholes formulae.