VAR Modeling for Dynamic Loadings Driving Volatility Strings

Download or read book VAR Modeling for Dynamic Loadings Driving Volatility Strings written by Ralf Brüggemann and published by . This book was released on 2016 with total page 29 pages. Available in PDF, EPUB and Kindle. Book excerpt: The implied volatility of an 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 time series using the vector autoregressive (VAR) framework and analyzes the dynamic relationship of these factors with economic indicators.