Related papers: Variance dispersion and correlation swaps
This paper investigates how realized and option implied volatilities are related to the future quantiles of commodity returns. Whereas realized volatility measures ex-post uncertainty, volatility implied by option prices reveals the…
The fundamental theorem behind financial markets is that stock prices are intrinsically complex and stochastic. One of the complexities is the volatility associated with stock prices. Volatility is a tendency for prices to change…
The instability of historical risk factor correlations renders their use in estimating portfolio risk extremely questionable. In periods of market stress correlations of risk factors have a tendency to quickly go well beyond estimated…
A possible data source for the estimation of asset correlations is default time series. This study investigates the systematic error that is made if the exposure pool underlying a default time series is assumed to be homogeneous when in…
We study the relation between stock price changes and the difference in the number of sell and buy orders. Using a soft spin model, we describe the price impact of order imbalances and find an analogy to the fluctuation-dissipation theorem…
How to price and hedge claims on nontraded assets are becoming increasingly important matters in option pricing theory today. The most common practice to deal with these issues is to use another similar or "closely related" asset or index…
Several models of stock trading [P. Bak et al, Physica A {\bf 246}, 430 (1997)] are analyzed in analogy with one-dimensional, two-species reaction-diffusion-branching processes. Using heuristic and scaling arguments, we show that the…
Speculative side-channel attacks access sensitive data and use transmitters to leak the data during wrong-path execution. Various defenses have been proposed to prevent such information leakage. However, not all speculatively executed…
In this paper, a pricing formula for volatility swaps is delivered when the underlying asset follows the stochastic volatility model with jumps and stochastic intensity. By using Feynman-Kac theorem, a partial integral differential equation…
According to the volatility feedback effect, an unexpected increase in squared volatility leads to an immediate decline in the price-dividend ratio. In this paper, we consider the properties of stock price dynamics and option valuations…
In February 2018, the VIX index has seen its largest ever increase and has lead to significant losses for some major volatility related products. Despite many efforts, the precise underlying reasons are yet to be discovered. We study the…
The introduction of CCPs in most derivative transactions will dramatically change the landscape of derivatives pricing, hedging and risk management, and, according to the TABB group, will lead to an overall liquidity impact about 2 USD…
Besides the classical distinction of correlation and dependence, many dependence measures bear further pitfalls in their application and interpretation. The aim of this paper is to raise and recall awareness of some of these limitations by…
Jump diffusion processes are widely used to model asset prices over time, mainly for their ability to capture complex discontinuous behavior, but inference on the model parameters remains a challenge. Here our goal is posterior inference on…
Jumps and market microstructure noise are stylized features of high-frequency financial data. It is well known that they introduce bias in the estimation of volatility (including integrated and spot volatilities) of assets, and many methods…
We consider a banking network represented by a system of stochastic differential equations coupled by their drift. We assume a core-periphery structure, and that the banks in the core hold a bubbly asset. The banks in the periphery have not…
This paper introduces a methodology for constructing a market index composed of a liquid risky asset and a liquid risk-free asset that achieves a fixed target volatility. Existing volatility-targeting strategies typically scale portfolio…
This paper introduces novel volatility diffusion models to account for the stylized facts of high-frequency financial data such as volatility clustering, intra-day U-shape, and leverage effect. For example, the daily integrated volatility…
Dispersive order is a type of variability order for comparing the variability in probability distributions. Star order compares the skewness of probability distributions. This work considers dispersive and star orders of extreme order…
This paper presents closed-form analytical formulas for pricing volatility and variance derivatives with nonlinear payoffs under discrete-time observations. The analysis is based on a probabilistic approach assuming that the underlying…