Virtual volatility
Physics and Society
2009-11-13 v2 Data Analysis, Statistics and Probability
Statistical Finance
Abstract
We introduce the concept of virtual volatility. This simple but new measure shows how to quantify the uncertainty in the forecast of the drift component of a random walk. The virtual volatility also is a useful tool in understanding the stochastic process for a given portfolio. In particular, and as an example, we were able to identify mean reversion effect in our portfolio. Finally, we briefly discuss the potential practical effect of the virtual volatility on an investor asset allocation strategy.
Keywords
Cite
@article{arxiv.physics/0607101,
title = {Virtual volatility},
author = {A. Christian Silva and Richard E. Prange},
journal= {arXiv preprint arXiv:physics/0607101},
year = {2009}
}
Comments
15 pages, 2 figures, elsart.cls, Accepted to Physica A. Added few comments that clarify data used for empirical work