A Look at Economics and Finance ©
Presenting free reports on the US Economy and Financial situation
for traders, investors, risk managers, and other interested parties.
The emphasis is on longer run and strategic considerations,
written in executive summary style with graphics.
There is no warranty or assertion of fitness for any particular purpose.
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Volatility surfaces: the fudge factor that adjusts brownian motion volatilities so that they better match the fat tailed distributions observed in the markets.
Stock versus bond diffusions (Histograms)
The stock diffusion is on the left while the bond is on the right.
Note how stock prices tend to collapse more easily than bond prices -- this is evidenced by the large probability mass on the left tail of the data histogram when viewed from the spikey t=0 point.
The data is the rolling near futures contract at the Chicago bond of trade from the beginning of the contract until the early 1990s.
