Volatility is a tool of fundamental importance for capturing price movements in financial markets. In general terms, volatility is the tendency of prices to vary along a period of time. Measuring volatility is a quantitative proxy of uncertainty in prices. There are different definitions of volatility measure. One of the most common is based on the standard deviation of daily returns. In this paper, we propose an alternative definition based on F–transform and its inverse. The method is compatible with the theory of risk originally proposed by Duncan Luce. As experimental setting, we considered the NIFTY 50 stock market index within the period September 2000 and February 2017. Results show that the proposed measure is smoother and better correlated between stocks.
A measure of market volatility based on F–transform
Luigi Troiano;
2020-01-01
Abstract
Volatility is a tool of fundamental importance for capturing price movements in financial markets. In general terms, volatility is the tendency of prices to vary along a period of time. Measuring volatility is a quantitative proxy of uncertainty in prices. There are different definitions of volatility measure. One of the most common is based on the standard deviation of daily returns. In this paper, we propose an alternative definition based on F–transform and its inverse. The method is compatible with the theory of risk originally proposed by Duncan Luce. As experimental setting, we considered the NIFTY 50 stock market index within the period September 2000 and February 2017. Results show that the proposed measure is smoother and better correlated between stocks.I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.
