MODELING ASYMMETRIC VOLATILITY IN THE CHICAGO BOARD OPTIONS EXCHANGE VOLATILITY INDEX

Mert Ural and Erhan Demi̇reli̇
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Mert Ural: Dokuz Eylul University, Faculty of Economics and Administrative Sciences, Department of Economics, 35160 Buca, Izmir, Turkey
Erhan Demi̇reli̇: Dokuz Eylul University, Faculty of Economics and Administrative Sciences, Department of Administrative Sciences, 35160 Buca, Izmir, Turkey

Studii Financiare (Financial Studies), 2018, vol. 22, issue 1, 20-31

Abstract: Empirical studies have shown that a large number of financial asset returns exhibit fat tails (leptokurtosis) and are often characterized by volatility clustering and asymmetry. This paper considers the ability of the asymmetric GARCH-type models (TGARCH, EGARCH, APGARCH) to capture the stylized features of volatility in the Chicago Board Options Exchange Volatility Index (VIX). We analyzed daily VIX returns for the period September 26th, 2012 - September 27th, 2017. The results of this paper suggest that in the presence of asymmetric responses to innovations in the market, the EGARCH (1,1) Student-t model which accommodates the kurtosis of VIX return series is preferred.

Keywords: asymmetry; volatility; response to market innovation (search for similar items in EconPapers)
JEL-codes: C22 C58 G15 (search for similar items in EconPapers)
Date: 2018
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