Volatility of volatility of financial markets

Authors:
L. Ingber;J. K. Wilson
Affiliations:
DRW Investments LLC, Chicago Mercantile Exchange Center 30 S. Wacker Dr., Ste 1516, Chicago, IL 60606, U.S.A. and Lester Ingber Research P.O. Box 06440, Wacker Dr. PO Sears Tower, Chicago, IL 606 ...;DRW Investments LLC, Chicago Mercantile Exchange Center 30 S. Wacker Dr., Ste. 1516, Chicago, IL 60606, U.S.A.
Venue:
Mathematical and Computer Modelling: An International Journal
Year:
1999

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Abstract

We present empirical evidence for considering volatility of Eurodollar futures as a stochastic process, requiring a generalization of the standard Black-Scholes (BS) model which treats volatility as a constant. We use a previous development of a statistical mechanics of financial markets (SMFM) to model these issues.