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ID: 117267

Modelling oil price volatility with structural breaks / Salisu, Afees A; Fasanya, Ismail O

Salisu, Afees A	Journal Article
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2013.

Summary/Abstract

In this paper, we provide two main innovations: (i) we analyze oil prices of two prominent markets namely West Texas Intermediate (WTI) and Brent using the two recently developed tests by Narayan and Popp (2010) and Liu and Narayan, 2010 both of which allow for two structural breaks in the data series; and (ii) the latter method is modified to include both symmetric and asymmetric volatility models. We identify two structural breaks that occur in 1990 and 2008 which coincidentally correspond to the Iraqi/Kuwait conflict and the global financial crisis, respectively. We find evidence of persistence and leverage effects in the oil price volatility. While further extensions can be pursued, the consideration of asymmetric effects as well as structural breaks should not be jettisoned when modelling oil price volatility.

Key Words

structural Breaks ; Crude Oil Price ; Volatility Modelling

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ID: 144519

Pricing efficiency in CNX nifty index options using the black–scholes model: a comparative study of alternate volatility measures / Nandan, Tanuj; Agrawal, Puja

Nandan, Tanuj	Article
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Summary/Abstract

This article attempts to determine the method of volatility estimation that prices the CNX Nifty Index options closest to the theoretical price as computed by the Black–Scholes (1973) model. Volatility has been estimated using simple variance, implied volatility, volatility index and the asymmetrical exponential generalised auto-regressive conditional heteroskedasticity (EGARCH) (1,1) model with generalised error distribution innovations. The trend in mispricing has been studied using error estimates and non-parametric tests. Our findings indicate significant mispricing in CNX Nifty Index options. The results of our study will have major implications for investors who use options as part of their portfolios and corporates who use them for risk hedging. Our study is important, as there are only a few studies that examine the pricing efficiency of options with a focus on volatility modelling. Also, our study spans a longer time period than the previous studies.

Key Words

EGARCH Model ; Volatility Modelling ; Pricing Efficiency ; Black–Scholes Model ; Non-parametric Tests ; Options Market

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