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Investigating Stock Market Volatility and other Volatility Sources using Stochastic Volatility Models |
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PP: 827-837 |
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doi:10.18576/amis/180414
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Author(s) |
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Chisara P. Ogbogbo,
Sandra C. Emenyonu,
Bright O. Osu,
Adaobi M. Udoye,
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Abstract |
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The stock market is exposed to risk due to the movements in market variables as volatility. Economic recession, monetary
policy, pandemic etc can induce volatility in the market. The Heston and Black Scholes models are used in predicting the stock prices
with some studies deriving a closed form solution. However, this current study focuses on predicting the values of portfolio with a
combination of recession Free State and recession non-free state based on the prevailing economic condition. A comparison was made
between the models having volatility with a recession free state and a recession non free state. Result show that the Heston model
captures volatility better than the Black -Scholes model. Therefore, forecasting future stock price volatility provides vital information
to the investors and enables decision making. Numerical illustrations were shown in concrete setting. |
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