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
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© 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 important 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 includes key innovations such as the Black-Scholes model, which revolutionized options pricing and pioneered the concept of implied volatility. The Autoregressive Conditional Heteroskedasticity (ARCH) and Generalized Autoregressive Conditional Heteroskedasticity (GARCH) models introduced frameworks for modeling time-varying volatility, paving the way for greater forecasting accuracy. Advancements in computing techniques have made it easier to analyze high-frequency data and estimate realized volatility, providing timely insights into market trends. The review also investigates contemporary trends, such as the use of machine learning algorithms and the issues provided by cryptocurrency marketplaces. Furthermore, the article examines the various characteristics and metrics of volatility, emphasizing its multidimensional nature and diverse uses in risk management, portfolio optimization, derivative pricing, and market analysis. Practical examples show how investors, traders, and financial professionals may use volatility to navigate complex market settings and make sound judgments. Finally, the study highlights the enduring significance of volatility in financial markets and highlights the need for continuing research and analysis to improve our understanding of market behavior. Acknowledging the complexities of volatility prepares market participants with valuable understandings to manage risks effectively and capitalize on market opportunities, thus 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