|
EconStor >
Humboldt-Universität Berlin >
Sonderforschungsbereich 373: Quantification and Simulation of Economic Processes, Humboldt-Universität Berlin >
Discussion Papers, SFB 373, HU Berlin >
Please use this identifier to cite or link to this item:
http://hdl.handle.net/10419/66280
|
| | |
| Title: | | Implied volatility string dynamics  |
| Authors: | | Fengler, Matthias R. Härdle, Wolfgang Mammen, Enno |
| Issue Date: | | 2003 |
| Series/Report no.: | | Discussion Papers, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes 2003,54 |
| Abstract: | | A primary goal in modelling the dynamics of implied volatility surfaces (IVS) aims at reducing complexity. For this purpose one fits the IVS each day and applies a principal component analysis using a functional norm. This approach, however, neglects the degenerated string structure of the implied volatility data and may result in a severe modelling bias. We propose a dynamic semiparametric factor model, which approximates the IVS in a finite dimensional function space. The key feature is that we only fit in the local neighborhood of the design points. Our approach is a combination of methods from functional principal component analysis and backfitting techniques for additive models. The model is found to have an approximate 10% better performance than the typical näive trader models. The model can be a backbone in risk management serving for value at risk computations and scenario analysis. |
| Subjects: | | Implied Volatility Surface Smile Generalized Additive Models Backfitting Functional Principal Component Analysis |
| JEL: | | C14 G12 |
| Persistent Identifier of the first edition: | | urn:nbn:de:kobv:11-10050885 |
| Document Type: | | Working Paper |
| Appears in Collections: | | Discussion Papers, SFB 373, HU Berlin
|
| |
| | |
Download bibliographical data as:
BibTeX
|
| |
Share on:http://hdl.handle.net/10419/66280
|
Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.
|