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Full-Text Articles in Physical Sciences and Mathematics
The Mean-Reverting 4/2 Stochastic Volatility Model: Properties And Financial Applications, Zhenxian Gong
The Mean-Reverting 4/2 Stochastic Volatility Model: Properties And Financial Applications, Zhenxian Gong
Electronic Thesis and Dissertation Repository
Financial markets and instruments are continuously evolving, displaying new and more refined stylized facts. This requires regular reviews and empirical evaluations of advanced models. There is evidence in literature that supports stochastic volatility models over constant volatility models in capturing stylized facts such as "smile" and "skew" presented in implied volatility surfaces. In this thesis, we target commodity and volatility index markets, and develop a novel stochastic volatility model that incorporates mean-reverting property and 4/2 stochastic volatility process. Commodities and volatility indexes have been proved to be mean-reverting, which means their prices tend to revert to their long term mean …
Estimation Of Hidden Markov Models And Their Applications In Finance, Anton Tenyakov
Estimation Of Hidden Markov Models And Their Applications In Finance, Anton Tenyakov
Electronic Thesis and Dissertation Repository
Movements of financial variables exhibit extreme fluctuations during periods of economic crisis and times of market uncertainty. They are also affected by institutional policies and intervention of regulatory authorities. These structural changes driving prices and other economic indicators can be captured reasonably by models featuring regime-switching capabilities. Hidden Markov models (HMM) modulating the model parameters to incorporate such regime-switching dynamics have been put forward in recent years, but many of them could still be further improved. In this research, we aim to address some of the inadequacies of previous regime-switching models in terms of their capacity to provide better forecasts …