Exploring Volatility: Evolution, Advancements, Trends, and Applications
Amit Rohilla
Dr. Amit Rohilla, Department of Commerce, Gargi College (University of Delhi), Siri Fort Road, New Delhi, India.
Manuscript received on 03 November 2023 | Revised Manuscript received on 10 November 2023 | Manuscript Accepted on 15 November 2023 | Manuscript published on 30 November 2023 | PP: 73-79 | Volume-3 Issue-2, November 2023 | Retrieval Number: 100.1/ijef.A257004010524 | DOI : 10.54105/ijef.A2570.03021123
Open Access | Editorial and Publishing Policies | Cite | Zenodo | Indexing and Abstracting
© The Authors. Published by Lattice Science Publication (LSP). This is an open-access article under the CC-BY-NC-ND license (http://creativecommons.org/licenses/by-nc-nd/4.0/)
Abstract: Volatility is a fundamental notion in financial markets, influencing investment decisions, risk management techniques, and market dynamics. This paper provides a thorough overview of the historical evolution and practical implications of volatility, focusing on essential works and key advancements in the field. The overview begins with early conceptions of volatility and the necessity for measurement prompted by market collapses, then progresses to advanced quantitative models and computer tools. The study encompasses key innovations, including the Black-Scholes model, which revolutionised options pricing and pioneered the concept of implied volatility. The Autoregressive Conditional Heteroskedasticity (ARCH) and Generalised Autoregressive Conditional Heteroskedasticity (GARCH) models introduced frameworks for modelling time-varying volatility, thereby paving the way for greater forecasting accuracy. Advancements in computing techniques have made it easier to analyze highfrequency data and estimate realized volatility, providing timely insights into market trends. The review also examines contemporary trends, including the application of machine learning algorithms and the challenges posed by cryptocurrency marketplaces. Furthermore, the article discusses the various characteristics and metrics of volatility, emphasising its multidimensional nature and diverse applications in risk management, portfolio optimisation, derivative pricing, and market analysis. Practical examples demonstrate how investors, traders, and financial professionals can utilise volatility to navigate complex market environments and make informed decisions. Finally, the study underscores the enduring significance of volatility in financial markets, emphasising the need for ongoing research and analysis to enhance our understanding of market behaviour. Acknowledging the complexities of volatility enables market participants to gain valuable insights for managing risks effectively and capitalising on market opportunities, thereby contributing to financial stability and optimal portfolio performance.
Keywords: Volatility, Financial Markets, Risk Management, Portfolio Optimization, Derivative Pricing, Market Analysis.
Scope of the Article: International and Financial Accounting