Physics – Physics and Society
Scientific paper
2006-07-11
Physics
Physics and Society
15 pages, 2 figures, elsart.cls, Accepted to Physica A. Added few comments that clarify data used for empirical work
Scientific paper
10.1016/j.physa.2006.10.017
We introduce the concept of virtual volatility. This simple but new measure shows how to quantify the uncertainty in the forecast of the drift component of a random walk. The virtual volatility also is a useful tool in understanding the stochastic process for a given portfolio. In particular, and as an example, we were able to identify mean reversion effect in our portfolio. Finally, we briefly discuss the potential practical effect of the virtual volatility on an investor asset allocation strategy.
Prange Richard E.
Silva Christian A.
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