Volatility conditional on price trends

DOI10.1080/14697680903266730MaRDI QIDQ3564812zbMATH OpenOpenAlexFDO

Authors G. Zumbach

Publication date 26 May 2010

Published in Quantitative Finance (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/cond-mat/0501699

zbMATH Keywords

ARCH processlong memorytrend effectvolatility forecasting

Mathematics Subject Classification ID

Time series, auto-correlation, regression, etc. in statistics (GARCH) (62M10) Statistical methods; risk measures (91G70)

Abstract: The influence of the past price behaviour on the realized volatility is investigated in the present article. The results show that trending (drifting) prices lead to increased (decreased) realized volatility. This ``volatility induced by trend constitutes a new stylized fact. The past price behaviour is measured by a product of 2 non overlapping returns, of the form r L[r] where L is the lag operator. The effect is studied empirically using USD/CHF foreign exchange data, in a large range of time horizons. A set of ARCH based processes are modified in order to include the trend effect, and their forecasting performances are compared. For a better forecast, it is shown that the main factor is the shape of the memory kernel (i.e. power law), and the following factor is the inclusion of the trend effect.

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Cites work

• Autoregressive Conditional Heteroscedasticity with Estimates of the Variance of United Kingdom Inflation
• Generalized autoregressive conditional heteroscedasticity
• Heterogeneous volatility cascade in financial markets
• Modelling the persistence of conditional variances

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• On the universality of the volatility formation process: when machine learning and rough volatility agree
• On the Guyon-Lekeufack volatility model
• Pricing and calibration in the 4-factor path-dependent volatility model
• Options-driven volatility forecasting
• Revisiting elastic string models of forward interest rates
• Joint deep calibration of the 4-factor PDV model

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