• Journal of the Korean Data and Information Science Society
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• v.24 no.1
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• pp.135-150
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• 2013

This study proposes a novel option strategy by using characteristic of volatility reversion and rough set algorithm in options market. Until now, various research has been conducted on stock and future markets, but minimal research has been done in options market. Particularly, research on the option trading strategy using high frequency data is limited. This study consists of two purposes. The first is to enjoy a profit using volatility reversion model when volatility gap is occurred. The second is to pursue a more stable profit by filtering inaccurate entry point through rough set algorithm. Since options market is affected by various elements like underlying assets, volatility and interest rate, the point of this study is to hedge elements except volatility and enjoy the profit following the volatility gap.

• The Korean Journal of Financial Studies
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• v.2 no.1
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• pp.145-158
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• 1995

According to recent empirical studies, there is a systematic pattern in temporal behaviors of asset returns, and that systematic pattern is related to the business cycle. I propose a model which captures this evidence. This is done by considering a state dependent preference structure where state dependency is related to the business cycle. In this setting, the three main puzzles(i.e., the volatility puzzle, the equity premium puzzle, mean reversion) are understood as interrelated behaviors.

• KDI Journal of Economic Policy
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• v.40 no.4
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• pp.1-22
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• 2018

We estimate three continuous-time stochastic volatility models following the approach by Aït-Sahalia and Kimmel (2007) to compare the Korean and US stock markets. To do this, the Heston, GARCH, and CEV models are applied to the KOSPI 200 and S&P 500 Index. For the latent volatility variable, we generate and use the integrated volatility proxy using the implied volatility of short-dated at-the-money option prices. We conduct MLE in order to estimate the parameters of the stochastic volatility models. To do this we need the transition probability density function (TPDF), but the true TPDF is not available for any of the models in this paper. Therefore, the TPDFs are approximated using the irreducible method introduced in Aït-Sahalia (2008). Among three stochastic volatility models, the Heston model and the CEV model are found to be best for the Korean and US stock markets, respectively. There exist relatively strong leverage effects in both countries. Despite the fact that the long-run mean level of the integrated volatility proxy (IV) was not statistically significant in either market, the speeds of the mean reversion parameters are statistically significant and meaningful in both markets. The IV is found to return to its long-run mean value more rapidly in Korea than in the US. All parameters related to the volatility function of the IV are statistically significant. Although the volatility of the IV is more elastic in the US stock market, the volatility itself is greater in Korea than in the US over the range of the observed IV.

• East Asian Economic Review
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• v.24 no.1
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• pp.61-87
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• 2020

Five diffusion models are estimated using three different foreign exchange rates to find an appropriate model for each. Daily spot exchange rates expressed as the prices of 1 euro, 1 British pound and 100 Japanese yen in US dollars, respectively denoted by USD/EUR, USD/GBP, and USD/100JPY, are used. The maximum likelihood estimation method is implemented after deriving an approximate log-transition density function (log-TDF) of the diffusion processes because the true log-TDF is unknown. Of the five models, the most general model is the best fit for the USD/GBP, and USD/100JPY exchange rates, but it is not the case for the case of USD/EUR. Although we could not find any evidence of the mean-reverting property for the USD/EUR exchange rate, the USD/GBP, and USD/100JPY exchange rates show the mean-reversion behavior. Interestingly, the volatility function of the USD/EUR exchange rate is increasing in the exchange rate while the volatility functions of the USD/GBP and USD/100Yen exchange rates have a U-shape. Our results reveal that more care has to be taken when determining a diffusion model for the exchange rate. The results also imply that we may have to use a more general diffusion model than those proposed in the literature when developing economic theories for the behavior of the exchange rate and pricing foreign currency options or derivatives.

• Journal of the Korea Academia-Industrial cooperation Society
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• v.13 no.5
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• pp.2096-2109
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• 2012

This study investigates empirical issues that have received little attention in the previous research in the Korean capital market. It is to find any financial determinants on the capital structure for the firms listed in the KOSDAQ(Korea Securities Dealers Automated Quotation). Another test is performed to find any possible discriminating factors by utilizing a robust methodology, which may distinguish between the firms belonging the 'prime section' and the 'venture section' in terms of their financial aspects. Moreover, the null hypothesis that the changing trend or movement of a firm's capital structure with respect to its industry mean (or median) may be random, is also tested. For the book-value based debt ratios, size(INSIZE), growth(GROWTH), Market to book value of equity(MVBV), volatility(VOLATILITY), market value of equity (MVE) and section dummy (SECTION) showed their statistically significant effects on the book-value based leverage ratios, respectively, while size(INSIZE), growth(GROWTH), market value of equity(MVE), beta(BETA) and section dummy (SECTION) showed their statistically significant effects on the market-value based leverage ratios. This study also found an interesting result that a firm belonging to each corresponding industry has a tendency for reversion toward its mean and median leverage ratios over the five-year tested period.

• Environmental and Resource Economics Review
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• v.14 no.4
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• pp.943-964
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• 2005

This study estimated a wide range of stochastic process models using the frameworks of CKLS (1992) and Nowman and Wang (2001). For empirical analysis, the GMM estimation procedure is adopted for the monthly Brent crude oil prices from January 1996 to January 2005. Using the simulated price series, European call option premiums were calculated and compared each other. The empirical results suggest that the crude oil price has a strong dependency of volatility on the price level. Contrary to the results of previous related studies, it shows a weak tendency of mean reversion. In addition, the models provide different implications for pricing derivatives on crude oil.