Asset Price Dynamics, Volatility, and Prediction / Edition 1

Paperback (Print)
Buy Used
Buy Used from BN.com
$42.52
(Save 39%)
Item is in good condition but packaging may have signs of shelf wear/aging or torn packaging.
Condition: Used – Good details
Used and New from Other Sellers
Used and New from Other Sellers
from $23.91
Usually ships in 1-2 business days
(Save 65%)
Other sellers (Paperback)
  • All (15) from $23.91   
  • New (9) from $45.98   
  • Used (6) from $23.91   

Overview

This book shows how current and recent market prices convey information about the probability distributions that govern future prices. Moving beyond purely theoretical models, Stephen Taylor applies methods supported by empirical research of equity and foreign exchange markets to show how daily and more frequent asset prices, and the prices of option contracts, can be used to construct and assess predictions about future prices, their volatility, and their probability distributions.

Stephen Taylor provides a comprehensive introduction to the dynamic behavior of asset prices, relying on finance theory and statistical evidence. He uses stochastic processes to define mathematical models for price dynamics, but with less mathematics than in alternative texts. The key topics covered include random walk tests, trading rules, ARCH models, stochastic volatility models, high-frequency datasets, and the information that option prices imply about volatility and distributions.

Asset Price Dynamics, Volatility, and Prediction is ideal for students of economics, finance, and mathematics who are studying financial econometrics, and will enable researchers to identify and apply appropriate models and methods. It will likewise be a valuable resource for quantitative analysts, fund managers, risk managers, and investors who seek realistic expectations about future asset prices and the risks to which they are exposed.

Read More Show Less

Editorial Reviews

RSS - Anthony F. Gyles
This book provides thorough, well-presented and concise coverage of asset price dynamics and manages to combine new developments, established issues, theory and application in a practical and refreshing manner. It is well illustrated with time series graphs and tables and has a good balance between theoretical concepts and their practical applications with a mathematical treatment that is not too specialized.
From the Publisher

Winner of the 2005 BestBook Award, Riskbook.com

"This book provides thorough, well-presented and concise coverage of asset price dynamics and manages to combine new developments, established issues, theory and application in a practical and refreshing manner. It is well illustrated with time series graphs and tables and has a good balance between theoretical concepts and their practical applications with a mathematical treatment that is not too specialized."--Anthony F. Gyles, RSS

RSS
This book provides thorough, well-presented and concise coverage of asset price dynamics and manages to combine new developments, established issues, theory and application in a practical and refreshing manner. It is well illustrated with time series graphs and tables and has a good balance between theoretical concepts and their practical applications with a mathematical treatment that is not too specialized.
— Anthony F. Gyles
Read More Show Less

Product Details

  • ISBN-13: 9780691134796
  • Publisher: Princeton University Press
  • Publication date: 8/13/2007
  • Edition description: New Edition
  • Edition number: 1
  • Pages: 544
  • Product dimensions: 6.10 (w) x 9.10 (h) x 1.30 (d)

Meet the Author

Stephen J. Taylor is Professor of Finance at Lancaster University, England. He is the author of "Modelling Financial Time Series" and many influential articles about applications of financial econometrics.

Read More Show Less

Table of Contents

Preface xiii

Chapter 1: Introduction 1
1.1 Asset Price Dynamics 1
1.2 Volatility 1
1.3 Prediction 2
1.4 Information 2
1.5 Contents 3
1.6 Software 5
1.7 Web Resources 6

PART I: Foundations 7

Chapter 2: Prices and Returns 9
2.1 Introduction 9
2.2 Two Examples of Price Series 9
2.3 Data-Collection Issues 10
2.4 Two Returns Series 13
2.5 Definitions of Returns 14
2.6 Further Examples of Time Series of Returns 19

Chapter 3: Stochastic Processes: Definitions and Examples 23
3.1 Introduction 23
3.2 Random Variables 24
3.3 Stationary Stochastic Processes 30
3.4 Uncorrelated Processes 33
3.5 ARMA Processes 36
3.6 Examples of ARMA 1 1 Specifications 44
3.7 ARIMA Processes 46
3.8 ARFIMA Processes 46
3.9 Linear Stochastic Processes 48
3.10 Continuous-Time Stochastic Processes 49
3.11 Notation for Random Variables and Observations 50

Chapter 4: Stylized Facts for Financial Returns 51
4.1 Introduction 51
4.2 Summary Statistics 52
4.3 Average Returns and Risk Premia 53
4.4 Standard Deviations 57
4.5 Calendar Effects 59
4.6 Skewness and Kurtosis 68
4.7 The Shape of the Returns Distribution 69
4.8 Probability Distributions for Returns 73
4.9 Autocorrelations of Returns 76
4.10 Autocorrelations of Transformed Returns 82
4.11 Nonlinearity of the Returns Process 92
4.12 Concluding Remarks 93
4.13 Appendix: Autocorrelation Caused by Day-of-the-Week Effects 94
4.14 Appendix: Autocorrelations of a Squared Linear Process 95
PART II: Conditional Expected Returns 97
Chapter 5: The Variance-Ratio Test of the Random Walk Hypothesis 99
5.1 Introduction 99
5.2 The Random Walk Hypothesis 100
5.3 Variance-Ratio Tests 102
5.4 An Example of Variance-Ratio Calculations 105
5.5 Selected Test Results 107
5.6 Sample Autocorrelation Theory 112
5.7 Random Walk Tests Using Rescaled Returns 115
5.8 Summary 120

Chapter 6: Further Tests of the Random Walk Hypothesis 121
6.1 Introduction 121
6.2 Test Methodology 122
6.3 Further Autocorrelation Tests 126
6.4 Spectral Tests 130
6.5 The Runs Test 133
6.6 Rescaled Range Tests 135
6.7 The BDS Test 136
6.8 Test Results for the Random Walk Hypothesis 138
6.9 The Size and Power of Random Walk Tests 144
6.10 Sources of Minor Dependence in Returns 148
6.11 Concluding Remarks 151
6.12 Appendix: the Correlation between Test Values for Two Correlated Series 153
6.13 Appendix: Autocorrelation Induced by Rescaling Returns 154

Chapter 7: Trading Rules and Market Efficiency 157
7.1 Introduction 157
7.2 Four Trading Rules 158
7.3 Measures of Return Predictability 163
7.4 Evidence about Equity Return Predictability 166
7.5 Evidence about the Predictability of Currency and Other Returns 168
7.6 An Example of Calculations for the Moving-Average Rule 172
7.7 Efficient Markets: Methodological Issues 175
7.8 Breakeven Costs for Trading Rules Applied to Equities 176
7.9 Trading Rule Performance for Futures Contracts 179
7.10 The Efficiency of Currency Markets 181
7.11 Theoretical Trading Profits for Autocorrelated Return Processes 184
7.12 Concluding Remarks 186

PART III: Volatility Processes 187

Chapter 8: An Introduction to Volatility 189
8.1 Definitions of Volatility 189
8.2 Explanations of Changes in Volatility 191
8.3 Volatility and Information Arrivals 193
8.4 Volatility and the Stylized Facts for Returns 195
8.5 Concluding Remarks 196

Chapter 9: ARCH Models: Definitions and Examples 197
9.1 Introduction 197
9.2 ARCH(1) 198
9.3 GARCH 1 1 199
9.4 An Exchange Rate Example of the GARCH 1 1 Model 205
9.5 A General ARCH Framework 212
9.6 Nonnormal Conditional Distributions 217
9.7 Asymmetric Volatility Models 220
9.8 Equity Examples of Asymmetric Volatility Models 222
9.9 Summary 233

Chapter 10: ARCH Models: Selection and Likelihood Methods 235
10.1 Introduction 235
10.2 Asymmetric Volatility: Further Specifications and Evidence 235
10.3 Long Memory ARCH Models 242
10.4 Likelihood Methods 245
10.5 Results from Hypothesis Tests 251
10.6 Model Building 256
10.7 Further Volatility Specifications 261
10.8 Concluding Remarks 264
10.9 Appendix: Formulae for the Score Vector 265
Chapter 11: Stochastic Volatility Models 267
11.1 Introduction 267
11.2 Motivation and Definitions 268
11.3 Moments of Independent SV Processes 270
11.4 Markov Chain Models for Volatility 271
11.5 The Standard Stochastic Volatility Model 278
11.6 Parameter Estimation for the Standard SV Model 283
11.7 An Example of SV Model Estimation for Exchange Rates 288
11.8 Independent SV Models with Heavy Tails 291
11.9 Asymmetric Stochastic Volatility Models 293
11.10 Long Memory SV Models 297
11.11 Multivariate Stochastic Volatility Models 298
11.12 ARCH versus SV 299
11.13 Concluding Remarks 301
11.14 Appendix: Filtering Equations 301

PART IV: High-Frequency Methods 303

Chapter 12: High-Frequency Data and Models 305
12.1 Introduction 305
12.2 High-Frequency Prices 306
12.3 One Day of High-Frequency Price Data 309
12.4 Stylized Facts for Intraday Returns 310
12.5 Intraday Volatility Patterns 316
12.6 Discrete-Time Intraday Volatility Models 321
12.7 Trading Rules and Intraday Prices 325
12.8 Realized Volatility: Theoretical Results 327
12.9 Realized Volatility: Empirical Results 332
12.10 Price Discovery 342
12.11 Durations 343
12.12 Extreme Price Changes 344
12.13 Daily High and Low Prices 346
12.14 Concluding Remarks 348
12.15 Appendix: Formulae for the Variance of the Realized Volatility Estimator 349

PART V: Inferences from Option Prices 351

Chapter 13: Continuous-Time Stochastic Processes 353
13.1 Introduction 353
13.2 The Wiener Process 354
13.3 Diffusion Processes 355
13.4 Bivariate Diffusion Processes 359
13.5 Jump Processes 361
13.6 Jump-Diffusion Processes 363
13.7 Appendix: a Construction of the Wiener Process 366

Chapter 14: Option Pricing Formulae 369
14.1 Introduction 369
14.2 Definitions, Notation, and Assumptions 370
14.3 Black-Scholes and Related Formulae 372
14.4 Implied Volatility 378
14.5 Option Prices when Volatility Is Stochastic 383
14.6 Closed-Form Stochastic Volatility Option Prices 388
14.7 Option Prices for ARCH Processes 391
14.8 Summary 394
14.9 Appendix: Heston's Option Pricing Formula 395

Chapter 15: Forecasting Volatility 397
15.1 Introduction 397
15.2 Forecasting Methodology 398
15.3 Two Measures of Forecast Accuracy 401
15.4 Historical Volatility Forecasts 403
15.5 Forecasts from Implied Volatilities 407
15.6 ARCH Forecasts that Incorporate Implied Volatilities 410
15.7 High-Frequency Forecasting Results 414
15.8 Concluding Remarks 420

Chapter 16: Density Prediction for Asset Prices 423
16.1 Introduction 423
16.2 Simulated Real-World Densities 424
16.3 Risk-Neutral Density Concepts and Definitions 428
16.4 Estimation of Implied Risk-Neutral Densities 431
16.5 Parametric Risk-Neutral Densities 435
16.6 Risk-Neutral Densities from Implied Volatility Functions 446
16.7 Nonparametric RND Methods 448
16.8 Towards Recommendations 450
16.9 From Risk-Neutral to Real-World Densities 451
16.10 An Excel Spreadsheet for Density Estimation 458
16.11 Risk Aversion and Rational RNDs 461
16.12 Tail Density Estimates 464
16.13 Concluding Remarks 465

Symbols 467
References 473
Author Index 503
Subject Index 513

Read More Show Less

Customer Reviews

Be the first to write a review
( 0 )
Rating Distribution

5 Star

(0)

4 Star

(0)

3 Star

(0)

2 Star

(0)

1 Star

(0)

Your Rating:

Your Name: Create a Pen Name or

Barnes & Noble.com Review Rules

Our reader reviews allow you to share your comments on titles you liked, or didn't, with others. By submitting an online review, you are representing to Barnes & Noble.com that all information contained in your review is original and accurate in all respects, and that the submission of such content by you and the posting of such content by Barnes & Noble.com does not and will not violate the rights of any third party. Please follow the rules below to help ensure that your review can be posted.

Reviews by Our Customers Under the Age of 13

We highly value and respect everyone's opinion concerning the titles we offer. However, we cannot allow persons under the age of 13 to have accounts at BN.com or to post customer reviews. Please see our Terms of Use for more details.

What to exclude from your review:

Please do not write about reviews, commentary, or information posted on the product page. If you see any errors in the information on the product page, please send us an email.

Reviews should not contain any of the following:

  • - HTML tags, profanity, obscenities, vulgarities, or comments that defame anyone
  • - Time-sensitive information such as tour dates, signings, lectures, etc.
  • - Single-word reviews. Other people will read your review to discover why you liked or didn't like the title. Be descriptive.
  • - Comments focusing on the author or that may ruin the ending for others
  • - Phone numbers, addresses, URLs
  • - Pricing and availability information or alternative ordering information
  • - Advertisements or commercial solicitation

Reminder:

  • - By submitting a review, you grant to Barnes & Noble.com and its sublicensees the royalty-free, perpetual, irrevocable right and license to use the review in accordance with the Barnes & Noble.com Terms of Use.
  • - Barnes & Noble.com reserves the right not to post any review -- particularly those that do not follow the terms and conditions of these Rules. Barnes & Noble.com also reserves the right to remove any review at any time without notice.
  • - See Terms of Use for other conditions and disclaimers.
Search for Products You'd Like to Recommend

Recommend other products that relate to your review. Just search for them below and share!

Create a Pen Name

Your Pen Name is your unique identity on BN.com. It will appear on the reviews you write and other website activities. Your Pen Name cannot be edited, changed or deleted once submitted.

 
Your Pen Name can be any combination of alphanumeric characters (plus - and _), and must be at least two characters long.

Continue Anonymously

    If you find inappropriate content, please report it to Barnes & Noble
    Why is this product inappropriate?
    Comments (optional)