Journal Article10.1016/J.JEDC.2005.03.008
Approximating volatility diffusions with cev-arch models
Fabio Fornari,Antonio Mele +1 more
TL;DR: In this paper, a new model of the ARCH class, which allows volatility to react nonlinearly to past shocks as a function of the past volatility level, is proposed.
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About: This article is published in Journal of Economic Dynamics and Control. The article was published on 01 Jun 2006. The article focuses on the topics: Stochastic volatility & Volatility (finance).
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Citations
Adding and Subtracting Black-Scholes: A New Approach to Approximating Derivative Prices in Continuous-Time Models
Dennis Kristensen,Antonio Mele +1 more
TL;DR: In this article, the authors develop a new approach to approximating asset prices in the context of continuous-time models, which relies on the expansion of the intractable model around an auxiliary model.
58
Weak Diffusion Limits of Dynamic Conditional Correlation Models
TL;DR: In this paper, the authors derived weak diffusion limits of a modified version of the classical DCC model, which is characterized by a diffusion matrix of reduced rank, where the degeneracy is due to perfect collinearity between the innovations of the volatility and correlation dynamics.
Switching to non-affine stochastic volatility: A closed-form expansion for the Inverse Gamma model
TL;DR: In this paper, the Inverse Gamma (IGa) stochastic volatility model with time-dependent parameters is introduced, which is much more realistic than the Heston model and provides more realistic volatility distribution and volatility paths.
Switching to nonaffine stochastic volatility: a closed-form expansion for the inverse gamma model
TL;DR: In this paper, the inverse gamma (IGa) stochastic volatility model with time-dependent parameters is examined and closed-form volatility-of-volatility expansions are obtained for the price of vanilla options, which allow for very fast pricing and calibration to market data.
Assessing the compensation for volatility risk implicit in interest rate derivatives
TL;DR: In this article, the authors use the risk neutral volatilities which market participants use to price dollar, euro and pound swaptions to assess the size and the sign of the daily compensation for interest rate volatility risk between October 1998 and August 2006.
15
References
The Pricing of Options and Corporate Liabilities
Fischer Black,Myron S. Scholes +1 more
TL;DR: In this paper, a theoretical valuation formula for options is derived, based on the assumption that options are correctly priced in the market and it should not be possible to make sure profits by creating portfolios of long and short positions in options and their underlying stocks.
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Generalized autoregressive conditional heteroskedasticity
Tim Bollerslev,Tim Bollerslev +1 more
TL;DR: In this paper, a natural generalization of the ARCH (Autoregressive Conditional Heteroskedastic) process introduced in 1982 to allow for past conditional variances in the current conditional variance equation is proposed.
23.2K
Large sample properties of generalized method of moments estimators
TL;DR: This paper investigates the large sample properties of generalized method of moments (GMM) estimators, a class of estimators that encompasses various standard econometric estimators, and demonstrates their strong consistency and asymptotic normality under certain conditions.
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Conditional heteroskedasticity in asset returns: a new approach
TL;DR: In this article, an exponential ARCH model is proposed to study volatility changes and the risk premium on the CRSP Value-Weighted Market Index from 1962 to 1987, which is an improvement over the widely-used GARCH model.
11.5K
•Book
Theory of rational option pricing
Robert K. Merton
- 12 Sep 2011
TL;DR: In this paper, the authors deduced a set of restrictions on option pricing formulas from the assumption that investors prefer more to less, which are necessary conditions for a formula to be consistent with a rational pricing theory.
9.9K