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A Geometric Treatment of Time-Varying Volatilities

Han, Chulwoo; Park, Frank C.; Kang, Jangkoo

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Authors

Chulwoo Han

Frank C. Park

Jangkoo Kang



Abstract

In this article, we propose a new framework for addressing multivariate time-varying volatilities. By employing methods of differential geometry, our model respects the geometric structure of the covariance space, i.e., symmetry and positive definiteness, in a way that is independent of any local coordinate parametrization. Its parsimonious specification makes it particularly suitable for large dimensional systems. Simulation studies suggest that our model embraces much of the nonlinear behaviour of the covariance dynamics. Applied to the US and the UK stock markets, the model performs well, especially when applied to risk measurement. In a broad context, our framework presents a new approach treating nonlinear properties observed in the financial market, and numerous areas of application can be further considered.

Citation

Han, C., Park, F. C., & Kang, J. (2017). A Geometric Treatment of Time-Varying Volatilities. Review of Quantitative Finance and Accounting, 49(4), 1121-1141. https://doi.org/10.1007/s11156-017-0618-0

Journal Article Type Article
Acceptance Date Jan 11, 2017
Online Publication Date Jan 28, 2017
Publication Date Nov 1, 2017
Deposit Date Jan 11, 2017
Publicly Available Date Mar 28, 2024
Journal Review of Quantitative Finance and Accounting
Print ISSN 0924-865X
Electronic ISSN 1573-7179
Publisher Springer
Peer Reviewed Peer Reviewed
Volume 49
Issue 4
Pages 1121-1141
DOI https://doi.org/10.1007/s11156-017-0618-0
Public URL https://durham-repository.worktribe.com/output/1367458

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Copyright Statement
© The Author(s) 2017.
This article is distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution, and reproduction in any medium, provided you give appropriate credit to the original author(s) and the source, provide a link to the Creative Commons license, and indicate if changes were made.






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