Stevens Paper Recognized in SSRN

5/11/2012

Construction of Volatility Indices Using a Multinomial Tree Approximation Method

 

An inter-disciplinary working group from Stevens comprising of, Professor Khaldoun Khashanah, Program Director, Financial Engineering,  Ionut Florescu, Assistant Professor, Mathematics, Dragos Bozdog, PhD student Mathematics/Financial Engineering and Hongwei Qiu, a graduate of the MS-Financial Engineering program, paper, “Construction of  Volatility Indices Using a Multinomial Tree Approximation Method,”  is listed as one of the Top Ten downloads on the Social Science Research Network (SSRN).

This paper introduces a new methodology for an alternative calculation of market volatility index based on a multinomial tree approximation of a stochastic volatility model. The estimation was performed by constructing synthetic options with consistent properties. Several variants of this index was calculated and their performance was analyzed over the whole dataset and over a subset of data corresponding to particular market events. The proposed index is compared with the VIX produced by CBOE.

SSRN is a worldwide collaborative of over 186,000 authors and more than 1.3 million users that is devoted to the rapid worldwide dissemination of social science research. Founded in 1994, it is composed of a number of specialized research networks in each of the social sciences. Each of SSRN's networks encourages the early distribution of research results by reviewing and distributing submitted abstracts and full text papers from scholars around the world. SSRN was named the Number 1 Open Access Repository in the World (for July, 2011) by the Ranking Web of World Repositories.

The paper was first published in HANDBOOK OF MODELING HIGH-FREQUENCY DATA IN FINANCE in December 2011.

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