Related papers: Volatility made observable at last

A new multivariate distribution possessing arbitrarily parametrized and positively dependent univariate Pareto margins is introduced. Unlike the probability law of Asimit et al. (2010) [Asimit, V., Furman, E. and Vernic, R. (2010) On a…

Quantum computers have the potential to provide an advantage for financial pricing problems by the use of quantum estimation. In a broader context, it is reasonable to ask about situations where the market and the assets traded on the…

We show how bad and good volatility propagate through forex markets, i.e., we provide evidence for asymmetric volatility connectedness on forex markets. Using high-frequency, intra-day data of the most actively traded currencies over 2007 -…

We consider the consumption-based asset pricing model, derive a new modified basic pricing equation, and present its successive approximations using the Taylor series expansions of the investor's utility during the averaging time interval.…

In this paper, we study the pricing of contracts in fixed income markets under volatility uncertainty in the sense of Knightian uncertainty or model uncertainty. The starting point is an arbitrage-free bond market under volatility…

The basis of arbitrage methods depends on the circulation of information within the framework of the financial market. Following the work of Modigliani and Miller, it has become a vital part of discussions related to the study of financial…

In this paper we study the Fourier estimator of Malliavin and Mancino for the spot volatility. We establish the convergence of the trigonometric polynomial to the volatility's path in a setting that includes the following aspects. First,…

The paper presents a construction of a quantitative measure of variability for parameter estimates in the data fitting problem under interval uncertainty. It shows the degree of variability and ambiguity of the estimate, and the need for…

A simple statement and accessible proof of a version of the Fundamental Theorem of Asset Pricing in discrete time is provided. Careful distinction is made between prices and cash flows in order to provide uniform treatment of all…

We introduce a new class of continuous-time models of the stochastic volatility of asset prices. The models can simultaneously incorporate roughness and slowly decaying autocorrelations, including proper long memory, which are two stylized…

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 introduction of transaction costs into the theory of option pricing could lead not only to the change of return for options, but also to the change of the volatility. On the base of assumption of the portfolio analysis, a new equation…

The question of the volatility roughness is interpreted in the framework of a data-reconstructed fractional volatility model, where volatility is driven by fractional noise. Some examples are worked out and also, using Malliavin calculus…

The use of factor stochastic volatility models requires choosing the number of latent factors used to describe the dynamics of the financial returns process; however, empirical evidence suggests that the number and makeup of pertinent…

In an incomplete continuous-time securities market with uncertainty generated by Brownian motions, we derive closed-form solutions for the equilibrium interest rate and market price of risk processes. The economy has a finite number of…

We discuss the probabilistic properties of the variation based third and fourth moments of financial returns as estimators of the actual moments of the return distributions. The moment variations are defined under non-parametric assumptions…

The article presents a translation of some widespread financial terminology into the language of decision theory. For instance, financial leverage can be regarded as an object of choice or a decision. We show how the optics of decision…

Research has shown banks match interest income and expense betas, and thereby obtain net interest income margins which are insensitive to changes in short-term interest rates. The present analysis extends this research in a number of ways.…

What is the dominating mechanism of the price dynamics in financial systems is of great interest to scientists. The problem whether and how volatilities affect the price movement draws much attention. Although many efforts have been made,…

Financial markets provide an ideal frame for studying decision making in crowded environments. Both the amount and accuracy of the data allows to apply tools and concepts coming from physics that studies collective and emergent phenomena or…