Modeling Volatility of Daily Tehran Price Index (TEPIX)

Importance of risk and uncertainty in financial markets became more apparent after financial crisis in 2007. Volatility is the most important measure of risk in financial markets. Thus, modeling volatility of financial markets is one of the important issues in finance and economics. In this paper first we tried to specify key features of volatility of daily returns of Tehran stock exchange price index (TEPIX) and then using these features, we modeled volatility of this index. We found that this index is fat-tailed distributed and mean- reverting. Furthermore, we showed that there is no leverage effect, so using of TARCH and EGARCH models are not convenient. Finally, we found that AR(2)-GARCH(1,1) Model can capture features of data in the best way.