Related papers: Variance Dynamics - An empirical journey
We develop a novel observation-driven model for high-frequency prices. We account for irregularly spaced observations, simultaneous transactions, discreteness of prices, and market microstructure noise. The relation between trade durations…
It is a market practice to express market-implied volatilities in some parametric form. The most popular parametrizations are based on or inspired by an underlying stochastic model, like the Heston model (SVI method) or the SABR model (SABR…
We prove that a wide class of correlated stochastic volatility models exactly measure an empirical fact in which past returns are anticorrelated with future volatilities: the so-called ``leverage effect''. This quantitative measure allows…
The measures of roughness of the volatility in the litterature are based on the realized volatility of high frequency data. Some authors show that this leads to a biased estimate, and does not necessarily indicate roughness of the…
In the over-the-counter market in derivatives, we sometimes see large numbers of traders taking the same position and risk. When there is this kind of concentration in the market, the position impacts the pricings of all other derivatives…
Long memory and volatility clustering are two stylized facts frequently related to financial markets. Traditionally, these phenomena have been studied based on conditionally heteroscedastic models like ARCH, GARCH, IGARCH and FIGARCH, inter…
We develop a methodology for index tracking and risk exposure control using financial derivatives. Under a continuous-time diffusion framework for price evolution, we present a pathwise approach to construct dynamic portfolios of…
The problem of non-stationarity in financial markets is discussed and related to the dynamic nature of price volatility. A new measure is proposed for estimation of the current asset volatility. A simple and illustrative explanation is…
Financial markets for Liquified Natural Gas (LNG) are an important and rapidly-growing segment of commodities markets. Like other commodities markets, there is an inherent spatial structure to LNG markets, with different price dynamics for…
We characterize the collective phenomena of a liquid market. By interpreting the behavior of a no-arbitrage N asset market in terms of a particle system scenario, (thermo)dynamical-like properties can be extracted from the asset kinetics.…
Option prices encode the market's collective outlook through implied density and implied volatility. An explicit link between implied density and implied volatility translates the risk-neutrality of the former into conditions on the latter…
This paper investigates short-term behaviors of implied volatility of derivatives written on indexes in equity markets when the index processes are constructed by using a ranking procedure. Even in simple market settings where stock prices…
We present a numerically efficient approach for learning a risk-neutral measure for paths of simulated spot and option prices up to a finite horizon under convex transaction costs and convex trading constraints. This approach can then be…
We develop a new stock market index that captures the chaos existing in the market by measuring the mutual changes of asset prices. This new index relies on a tensor-based embedding of the stock market information, which in turn frees it…
We develop a framework for composite likelihood estimation of parametric continuous-time stationary Gaussian processes. We derive the asymptotic theory of the associated maximum composite likelihood estimator. We implement our approach on a…
Employing a recent technique which allows the representation of nonstationary data by means of a juxtaposition of locally stationary patches of different length, we introduce a comprehensive analysis of the key observables in a financial…
We propose a general interpretation for long-range correlation effects in the activity and volatility of financial markets. This interpretation is based on the fact that the choice between `active' and `inactive' strategies is subordinated…
We study dynamics of a simulated world with stock and money, driven by the externally given processes which we refer to as sentiments. The considered sentiments influence the buy/sell stock trading attitude, the perceived price uncertainty,…
One the one hand, rough volatility has been shown to provide a consistent framework to capture the properties of stock price dynamics both under the historical measure and for pricing purposes. On the other hand, market price of volatility…
Non-equilibrium phenomena occur not only in physical world, but also in finance. In this work, stochastic relaxational dynamics (together with path integrals) is applied to option pricing theory. A recently proposed model (by Ilinski et…