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An application of padé approximation to volatility modeling

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  • María Gil Fariña
  • Rosa Lorenzo Alegría

Abstract

This paper studies the dynamic relationship between future volatility and implied and historical volatility using data from Alegría and Rodríguez [1997]. The methodological approach forms part of the theoretical research being carried out in numerical analysis and especially from the rational Padé approximation. This tool helps to characterize simple computational methods in order to study questions about dynamic modelization of doubly infinite series. Considering noncausal series, where the expectations provided by economic theory or empirical evidence are included in available sample data, leads to dynamic specifications suitable not only from the perspective of fitting available data, but also from their predictive performance when compared to traditionally used formulae based merely on data analysis. Copyright International Atlantic Economic Society 1999

Suggested Citation

  • María Gil Fariña & Rosa Lorenzo Alegría, 1999. "An application of padé approximation to volatility modeling," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 5(4), pages 446-465, November.
    • Handle: RePEc:kap:iaecre:v:5:y:1999:i:4:p:446-465:10.1007/bf02295543
    DOI: 10.1007/BF02295543
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    Cited by:

    1. Li, Minqiang, 2008. "Approximate inversion of the Black-Scholes formula using rational functions," European Journal of Operational Research, Elsevier, vol. 185(2), pages 743-759, March.

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