Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/62716 
Full metadata record
DC FieldValueLanguage
dc.contributor.authorFengler, Matthias R.en
dc.contributor.authorHärdle, Wolfgang Karlen
dc.contributor.authorVilla, Christopheen
dc.date.accessioned2012-09-18T13:46:11Z-
dc.date.available2012-09-18T13:46:11Z-
dc.date.issued2001-
dc.identifier.piurn:nbn:de:kobv:11-10049795en
dc.identifier.urihttp://hdl.handle.net/10419/62716-
dc.description.abstractIt is common practice to identify the number and sources of shocks that move implied volatilities across space and time by applying Principal Components Analysis (PCA) to pooled covariance matrices of changes in implied volatilities. This approach, however, is likely to result in a loss of information, since the surface structure of implied volatilities in the maturities and moneyness dimension is neglected. In this paper we propose to estimate the implied volatility surface at each point in time nonparametrically and to analyze the implied volatility surface slice by slice with a common principal components analysis (CPCA). As opposed to traditional PCA, the basic assumption of CPCA is that the space spanned by the eigenvectors is identical across groups, whereas variances associated with the components are allowed to vary. This allows us to study a p variate random vector of k groups, say the volatility smile at p different grid points of moneyness for k maturities, simultaneously. Our evidence suggests that surface dynamics can indeed be traced back to a common eigenstructure between covariance matrices of the surface slices, which allow for the usual shift, slope, and twist interpretation of shocks to implied volatilities. This insight is a suitable starting point for VaR Monte Carlo Simulations of delta-gamma neutral, vega sensitive option portfolios.en
dc.language.isoengen
dc.publisher|aHumboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes |cBerlinen
dc.relation.ispartofseries|aSFB 373 Discussion Paper |x2001,38en
dc.subject.jelC13en
dc.subject.jelC49en
dc.subject.jelG13en
dc.subject.ddc330en
dc.subject.keywordCommon Principal Component Analysisen
dc.subject.keywordImplied Volatility Surfaceen
dc.subject.keywordPrincipal Component Analysisen
dc.subject.keywordSmileen
dc.titleThe dynamics of implied volatilities: A common principal components approach-
dc.typeWorking Paperen
dc.identifier.ppn724896961en
dc.rightshttp://www.econstor.eu/dspace/Nutzungsbedingungenen
dc.identifier.repecRePEc:zbw:sfb373:200138en

Files in This Item:
File
Size
692.75 kB





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.