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Title:VAR modeling for dynamic semiparametric factors of volatility strings PDF Logo
Authors:Brüggemann, Ralf
Härdle, Wolfgang Karl
Mungo, Julius
Trenkler, Carsten
Issue Date:2006
Series/Report no.:SFB 649 discussion paper 2006-011
Abstract:The implied volatility of a European option as a function of strike price and time to maturity forms a volatility surface. Traders price according to the dynamics of this high dimensional surface. Recent developments that employ semiparametric models approximate the implied volatility surface (IVS) in a finite dimensional function space, allowing for a low dimensional factor representation of these dynamics. This paper presents an investigation into the stochastic properties of the factor loading times series using the vector autoregressive (VAR) framework and analyzes associated movements of these factors with movements in some macroeconomic variables of the Euro-economy.
Subjects:Implied volatility surface
dynamic semiparametric factor model
unit root tests
vector autoregression
impulse responses.
JEL:C14
C32
Document Type:Working Paper
Appears in Collections:SFB 649 Discussion Papers, HU Berlin

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