Volatility is very much with us in today's equity markets. Day-to-day price swings are often large and intra-day volatility elevated, especially at market openings and closings. What explains this? What does this say about the quality of our markets? Can short-period volatility be controlled by better market design and a more effective use of electronic technology? Featuring insights from an international array of prominent academics, financial markets experts, policymakers and journalists, the book addresses these and other questions concerning this timely topic. In so doing, we seek deeper knowledge of the dynamic process of price formation, and of the market structure and regulatory environment within which our markets function. The Zicklin School of Business Financial Markets Series presents the insights emerging from a sequence of conferences hosted by the Zicklin School at Baruch College for industry professionals, regulators, and scholars. Much more than historical documents, the transcripts from the conferences are edited for clarity, perspective and context; material and comments from subsequent interviews with the panelists and speakers are integrated for a complete thematic presentation. Each book is focused on a well delineated topic, but all deliver broader insights into the quality and efficiency of the U.S. equity markets and the dynamic forces changing them.

Volatility in financial markets has forced economists to reexamine the validity of the efficient markets hypothesis, and new empirical approaches have been applied to the study of this important issue in recent years. Many of the recent studies have found evidence of excessive volatility. In the aftermath of the stock market crash of 1987 and the perceived increase in market volatility, some economists have advocated additional market regulations. Are these proposed regulations necessary and would they serve to reduce market volatility? This paper presents a review of recent studies on financial market volatility and examines the proposed regulations.

This text assumes that the reader has a firm grounding in the key principles and methods of understanding volatility measurement and builds on that knowledge to detail cutting edge modeling and forecasting techniques. It then uses a technical survey to explain the different ways to measure risk and define the different models of volatility and return.

It is now abundantly clear that stock volatility is a contagious disease that spreads virulently from market to market around the world. Price changes in one market drive subsequent price changes in that market as well as in others. In Beast, Haugen makes a compelling case for the fact that even under normal conditions, fully 80 percent of stock volatility is price driven. Moreover, this volatility is far from benign. It acts to reduce the level of investment spending and constitutes a significant and permanent drag on economic growth. Price-driven volatility is unstable. Dramatic and unpredictable explosions in price-driven volatility can send stock markets in a downward spiral and cause significant disruptions in economic activity. Haugen argues that this indeed happened in 1929 and 1930. If volatility in Asian markets persists, it can easily become the source of the problem rather than merely a symptom.

In Volatility and Correlation 2nd edition: The Perfect Hedger and the Fox, Rebonato looks at derivatives pricing from the angle of volatility and correlation. With both practical and theoretical applications, this is a thorough update of the highly successful Volatility & Correlation – with over 80% new or fully reworked material and is a must have both for practitioners and for students. The new and updated material includes a critical examination of the ‘perfect-replication’ approach to derivatives pricing, with special attention given to exotic options; a thorough analysis of the role of quadratic variation in derivatives pricing and hedging; a discussion of the informational efficiency of markets in commonly-used calibration and hedging practices. Treatment of new models including Variance Gamma, displaced diffusion, stochastic volatility for interest-rate smiles and equity/FX options. The book is split into four parts. Part I deals with a Black world without smiles, sets out the author’s ‘philosophical’ approach and covers deterministic volatility. Part II looks at smiles in equity and FX worlds. It begins with a review of relevant empirical information about smiles, and provides coverage of local-stochastic-volatility, general-stochastic-volatility, jump-diffusion and Variance-Gamma processes. Part II concludes with an important chapter that discusses if and to what extent one can dispense with an explicit specification of a model, and can directly prescribe the dynamics of the smile surface. Part III focusses on interest rates when the volatility is deterministic. Part IV extends this setting in order to account for smiles in a financially motivated and computationally tractable manner. In this final part the author deals with CEV processes, with diffusive stochastic volatility and with Markov-chain processes. Praise for the First Edition: “In this book, Dr Rebonato brings his penetrating eye to bear on option pricing and hedging.... The book is a must-read for those who already know the basics of options and are looking for an edge in applying the more sophisticated approaches that have recently been developed.” —Professor Ian Cooper, London Business School “Volatility and correlation are at the very core of all option pricing and hedging. In this book, Riccardo Rebonato presents the subject in his characteristically elegant and simple fashion...A rare combination of intellectual insight and practical common sense.” —Anthony Neuberger, London Business School