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The Science of Algorithmic Trading and Portfolio Management by Robert Kissell

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Chapter 6

Price Volatility

This chapter introduces the reader to price volatility and factor models. We start with an overview of various volatility estimating techniques including the historical moving average, exponential weighted moving average (EWMA) popularized by RiskMetrics (1996), heteroscadisticity (ARCH) introduced by Engle (1982), generalized autoregressive conditional heteroscadisticity (GARCH) introduced by Bollerslev (1986)). The chapter continues with an overview of factor models and how these models can be used to measure correlation and co-movement across stocks. Factor models include time series, cross-sectional/fundamental, and principal component analysis.

Keywords

volatility; covariance; correlation; factor models; risk models; ...

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