The article titled, “The Log Contract”, is a 20 year old article. It was first article that made a case for the need for a new instrument to hedge volatility. There is something nice about papers written in the old times. The authors give a healthy intuition about the stuff they are about to explain in the paper, use simple equations that do not require too much of “head banging” and at the end of it, the reader pretty much gets the gist of the paper.

[youtube https://www.youtube.com/watch?v=4OBLAW7oQYo?rel=0]

The paper titled, “A Simple Long Memory Model of Realized Volatility”, is one of the most cited papers in the area of long memory volatility models. One typically assumes that log prices follow an arithmetic random walk. In this kind of set up, it has been shown in the previous research that integrated volatility of Brownian motion can be approximated to any arbitrary precision using the sum of intraday squared returns.

The paper, “Determining the best forecasting models”, is about testing 55 models that belong to the GARCH family. If we have just one model and a straw model, it is easy to show that some statistic on the test sample that the hypothesized model is superior. How do we go about testing a set of competing models? There are many wonderful techniques in the Bayesian world. However this paper is more frequentist in nature.

The paper titled, “Liquidity considerations in estimating implied volatility”, by Susan Thomas and Rohini Grover, is about a new way of constructing volatility index that is based on weighing the implied volatility of the options based on the relative spreads at various strikes. The key idea behind the paper is that there is considerable liquidity asymmetry across various strikes for the near month and mid month contracts on NIFTY options. This leads the authors to hypothesize a measure that is based on weighing implied volatilities.