Talk:Constant elasticity of variance model

Latest comment: 2 years ago by Cluckenstein in topic [Untitled]

[Untitled]

edit

I believe this article is confused about leverage. The general use of the term leverage in finance refers to the use of debt in acquiring a position in a security. The use of leverage will increase the volatility of the price relative to the equity position, but this article suggests that leverage is a relationship between the volatility the stock and the level of the price. The description in this article appears to accurately reflect the parameter gamma, but I don't believe it is the term "leverage" is generally used in finance.--S Philbrick(Talk) 14:18, 6 August 2016 (UTC)Reply

I also believe the author is confused about leverage. However if the gamma condition is not at gamma < or > 1 but rather < or > 0, then what he describes is correct, but still not a leverage effect.
I therefore recommend to changed the part "The parameter gamma
controls the relationship between volatility and price, and is the central feature of the model. When gamma<1 we see the so-called leverage effect, commonly observed in equity markets, where the volatility of a stock increases as its price falls. Conversely, in commodity markets, we often observe gamma > 1, the so-called inverse leverage effect, whereby the volatility of the price of a commodity tends to increase as its price increases."
to be corrected.
The sources which validate that are already given by previous authors. Cluckenstein (talk) 08:09, 29 March 2022 (UTC)Reply

Details lacking

edit

Too many details were lacking in explaining the central equation. I have tried to add them. —DIV (120.17.120.121 (talk) 00:34, 20 February 2018 (UTC))Reply