Asset price dynamics, volatility, and prediction
This book shows how current and recent market prices convey information about the probability distributions that govern future prices. Moving beyond purely theoretical models, Stephen Taylor applies methods supported by empirical research of equity and foreign exchange markets to show how daily and...
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| Format: | E-Book Buch Verlag |
| Sprache: | Englisch |
| Veröffentlicht: |
Princeton, N.J
Princeton University Press
2011
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| Ausgabe: | STU - Student edition |
| Schlagworte: | |
| ISBN: | 9780691134796, 9780691115375, 0691115370, 0691134790, 1400839254, 9781400839254 |
| Online-Zugang: | Volltext |
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Inhaltsangabe:
- Asset price dynamics, volatility, and prediction -- Contents -- Preface -- 1. Introduction -- Part I: Foundations -- 2. Prices and Returns -- 3. Stochastic Processes: Definitions and Examples -- 4. Stylized Facts for Financial Returns -- Part II: Conditional Expected Returns -- 5. The Variance-Ratio Test of the Random Walk Hypothesis -- 6. Further Tests of the Random Walk Hypothesis -- 7. Trading Rules and Market Efficiency -- Part III: Volatility Processes -- 8. An Introduction to Volatility -- 9. ARCH Models: Definitions and Examples -- 10. ARCH Models: Selection and Likelihood Methods -- 11. Stochastic Volatility Models -- Part IV: High-Frequency Methods -- 12. High-Frequency Data and Models -- Part V: Inferences from Option Prices -- 13. Continuous-Time Stochastic Processes -- 14. Option Pricing Formulae -- 15. Forecasting Volatility -- 16. Density Prediction for Asset Prices -- Symbols -- References -- Author Index -- Subject Index
- Front Matter Table of Contents Preface 1: Introduction 2: Prices and Returns 3: Stochastic Processes: 4: Stylized Facts for Financial Returns 5: The Variance-Ratio Test of the Random Walk Hypothesis 6: Further Tests of the Random Walk Hypothesis 7: Trading Rules and Market Efficiency 8: An Introduction to Volatility 9: ARCH Models: 10: ARCH Models: 11: Stochastic Volatility Models 12: High-Frequency Data and Models 13: Continuous-Time Stochastic Processes 14: Option Pricing Formulae 15: Forecasting Volatility 16: Density Prediction for Asset Prices Symbols References Author Index Subject Index
- Cover Title Page, Copyright Contents Preface 1 Introduction I: Foundations 2 Prices and Returns 3 Stochastic Processes: Definitions and Examples 4 Stylized Facts for Financial Returns II: Conditional Expected Returns 5 The Variance-Ratio Test of the Random Walk Hypothesis 6 Further Tests of the Random Walk Hypothesis 7 Trading Rules and Market Efficiency III: Volatility Processes 8 An Introduction to Volatility 9 ARCH Models: Definitions and Examples 10 ARCH Models: Selection and Likelihood Methods 11 Stochastic Volatility Models IV: High-Frequency Methods 12 High-Frequency Data and Models V: Inferences from Option Prices 13 Continuous-Time Stochastic Processes 14 Option Pricing Formulae 15 Forecasting Volatility 16 Density Prediction for Asset Prices Symbols References Author Index Subject Index
- 10.5 Results from Hypothesis Tests -- 10.6 Model Building -- 10.7 Further Volatility Specifications -- 10.8 Concluding Remarks -- 10.9 Appendix: Formulae for the Score Vector -- 11 Stochastic Volatility Models -- 11.1 Introduction -- 11.2 Motivation and Definitions -- 11.3 Moments of Independent SV Processes -- 11.4 Markov Chain Models for Volatility -- 11.5 The Standard Stochastic Volatility Model -- 11.6 Parameter Estimation for the Standard SV Model -- 11.7 An Example of SV Model Estimation for Exchange Rates -- 11.8 Independent SV Models with Heavy Tails -- 11.9 Asymmetric Stochastic Volatility Models -- 11.10 Long Memory SV Models -- 11.11 Multivariate Stochastic Volatility Models -- 11.12 ARCH versus SV -- 11.13 Concluding Remarks -- 11.14 Appendix: Filtering Equations -- IV: High-Frequency Methods -- 12 High-Frequency Data and Models -- 12.1 Introduction -- 12.2 High-Frequency Prices -- 12.3 One Day of High-Frequency Price Data -- 12.4 Stylized Facts for Intraday Returns -- 12.5 Intraday Volatility Patterns -- 12.6 Discrete-Time Intraday Volatility Models -- 12.7 Trading Rules and Intraday Prices -- 12.8 Realized Volatility: Theoretical Results -- 12.9 Realized Volatility: Empirical Results -- 12.10 Price Discovery -- 12.11 Durations -- 12.12 Extreme Price Changes -- 12.13 Daily High and Low Prices -- 12.14 Concluding Remarks -- 12.15 Appendix: Formulae for the Variance of the Realized Volatility Estimator -- V: Inferences from Option Prices -- 13 Continuous-Time Stochastic Processes -- 13.1 Introduction -- 13.2 The Wiener Process -- 13.3 Diffusion Processes -- 13.4 Bivariate Diffusion Processes -- 13.5 Jump Processes -- 13.6 Jump-Diffusion Processes -- 13.7 Appendix: a Construction of the Wiener Process -- 14 Option Pricing Formulae -- 14.1 Introduction -- 14.2 Definitions, Notation, and Assumptions -- 14.3 Black-Scholes and Related Formulae
- 14.4 Implied Volatility -- 14.5 Option Prices when Volatility Is Stochastic -- 14.6 Closed-Form Stochastic Volatility Option Prices -- 14.7 Option Prices for ARCH Processes -- 14.8 Summary -- 14.9 Appendix: Heston's Option Pricing Formula -- 15 Forecasting Volatility -- 15.1 Introduction -- 15.2 Forecasting Methodology -- 15.3 Two Measures of Forecast Accuracy -- 15.4 Historical Volatility Forecasts -- 15.5 Forecasts from Implied Volatilities -- 15.6 ARCH Forecasts that Incorporate Implied Volatilities -- 15.7 High-Frequency Forecasting Results -- 15.8 Concluding Remarks -- 16 Density Prediction for Asset Prices -- 16.1 Introduction -- 16.2 Simulated Real-World Densities -- 16.3 Risk-Neutral Density Concepts and Definitions -- 16.4 Estimation of Implied Risk-Neutral Densities -- 16.5 Parametric Risk-Neutral Densities -- 16.6 Risk-Neutral Densities from Implied Volatility Functions -- 16.7 Nonparametric RND Methods -- 16.8 Towards Recommendations -- 16.9 From Risk-Neutral to Real-World Densities -- 16.10 An Excel Spreadsheet for Density Estimation -- 16.11 Risk Aversion and Rational RNDs -- 16.12 Tail Density Estimates -- 16.13 Concluding Remarks -- Symbols -- References -- Author Index -- A -- B -- C -- D -- E -- F -- G -- H -- I -- J -- K -- L -- M -- N -- O -- P -- R -- S -- T -- U -- V -- W -- X -- Y -- Z -- Subject Index -- A -- B -- C -- D -- E -- F -- G -- H -- I -- J -- K -- L -- M -- N -- O -- P -- Q -- R -- S -- T -- U -- V -- W -- Y -- Z
- Cover -- Title -- Copyright -- Contents -- Preface -- 1 Introduction -- 1.1 Asset Price Dynamics -- 1.2 Volatility -- 1.3 Prediction -- 1.4 Information -- 1.5 Contents -- 1.6 Software -- 1.7 Web Resources -- I: Foundations -- 2 Prices and Returns -- 2.1 Introduction -- 2.2 Two Examples of Price Series -- 2.3 Data-Collection Issues -- 2.4 Two Returns Series -- 2.5 Definitions of Returns -- 2.6 Further Examples of Time Series of Returns -- 3 Stochastic Processes: Definitions and Examples -- 3.1 Introduction -- 3.2 Random Variables -- 3.3 Stationary Stochastic Processes -- 3.4 Uncorrelated Processes -- 3.5 ARMA Processes -- 3.6 Examples of ARMA(1, 1) Specifications -- 3.7 ARIMA Processes -- 3.8 ARFIMA Processes -- 3.9 Linear Stochastic Processes -- 3.10 Continuous-Time Stochastic Processes -- 3.11 Notation for Random Variables and Observations -- 4 Stylized Facts for Financial Returns -- 4.1 Introduction -- 4.2 Summary Statistics -- 4.3 Average Returns and Risk Premia -- 4.4 Standard Deviations -- 4.5 Calendar Effects -- 4.6 Skewness and Kurtosis -- 4.7 The Shape of the Returns Distribution -- 4.8 Probability Distributions for Returns -- 4.9 Autocorrelations of Returns -- 4.10 Autocorrelations of Transformed Returns -- 4.11 Nonlinearity of the Returns Process -- 4.12 Concluding Remarks -- 4.13 Appendix: Autocorrelation Caused by Day-of-the-Week Effects -- 4.14 Appendix: Autocorrelations of a Squared Linear Process -- II: Conditional Expected Returns -- 5 The Variance-Ratio Test of the Random Walk Hypothesis -- 5.1 Introduction -- 5.2 The RandomWalk Hypothesis -- 5.3 Variance-Ratio Tests -- 5.4 An Example of Variance-Ratio Calculations -- 5.5 Selected Test Results -- 5.6 Sample Autocorrelation Theory -- 5.7 Random Walk Tests Using Rescaled Returns -- 5.8 Summary -- 6 Further Tests of the Random Walk Hypothesis -- 6.1 Introduction
- 6.2 Test Methodology -- 6.3 Further Autocorrelation Tests -- 6.4 Spectral Tests -- 6.5 The Runs Test -- 6.6 Rescaled Range Tests -- 6.7 The BDS Test -- 6.8 Test Results for the Random Walk Hypothesis -- 6.9 The Size and Power of Random Walk Tests -- 6.10 Sources of Minor Dependence in Returns -- 6.11 Concluding Remarks -- 6.12 Appendix: the Correlation between Test Values for Two Correlated Series -- 6.13 Appendix: Autocorrelation Induced by Rescaling Returns -- 7 Trading Rules and Market Efficiency -- 7.1 Introduction -- 7.2 Four Trading Rules -- 7.3 Measures of Return Predictability -- 7.4 Evidence about Equity Return Predictability -- 7.5 Evidence about the Predictability of Currency and Other Returns -- 7.6 An Example of Calculations for the Moving-Average Rule -- 7.7 Efficient Markets: Methodological Issues -- 7.8 Breakeven Costs for Trading Rules Applied to Equities -- 7.9 Trading Rule Performance for Futures Contracts -- 7.10 The Efficiency of Currency Markets -- 7.11 Theoretical Trading Profits for Autocorrelated Return Processes -- 7.12 Concluding Remarks -- III: Volatility Processes -- 8 An Introduction to Volatility -- 8.1 Definitions of Volatility -- 8.2 Explanations of Changes in Volatility -- 8.3 Volatility and Information Arrivals -- 8.4 Volatility and the Stylized Facts for Returns -- 8.5 Concluding Remarks -- 9 ARCH Models: Definitions and Examples -- 9.1 Introduction -- 9.2 ARCH(1) -- 9.3 GARCH(1, 1) -- 9.4 An Exchange Rate Example of the GARCH(1, 1) Model -- 9.5 A General ARCH Framework -- 9.6 Nonnormal Conditional Distributions -- 9.7 Asymmetric Volatility Models -- 9.8 Equity Examples of Asymmetric Volatility Models -- 9.9 Summary -- 10 ARCH Models: Selection and Likelihood Methods -- 10.1 Introduction -- 10.2 Asymmetric Volatility: Further Specifications and Evidence -- 10.3 Long Memory ARCH Models -- 10.4 Likelihood Methods
- References --
- Contents --
- 6. Further Tests of the RandomWalk Hypothesis --
- Subject Index
- Preface --
- 7. Trading Rules and Market Efficiency --
- 16. Density Prediction for Asset Prices --
- 1. Introduction --
- 2. Prices and Returns --
- 15. Forecasting Volatility --
- 9. ARCH Models: Definitions and Examples --
- Symbols --
- 12. High-Frequency Data and Models --
- 11. Stochastic Volatility Models --
- 4. Stylized Facts for Financial Returns --
- 10. ARCH Models: Selection and Likelihood Methods --
- Part I. Foundations --
- Part III. Volatility Processes --
- Part II. Conditional Expected Returns --
- 5. The Variance-Ratio Test of the RandomWalk Hypothesis --
- Author Index --
- Frontmatter --
- 3. Stochastic Processes: Definitions and Examples --
- 13. Continuous-Time Stochastic Processes --
- Part IV. High-Frequency Methods --
- 14. Option Pricing Formulae --
- 8. An Introduction to Volatility --
- Part V. Inferences from Option Prices --