Related papers: Temporal Volatility Surface Projection: Parametric…
Volatility is a key measure of risk in financial analysis. The high volatility of one financial asset today could affect the volatility of another asset tomorrow. These lagged effects among volatilities - which we call volatility spillovers…
This paper proposes to model asset price dynamics with a mixture of diffusion processes where the instantaneous volatility of the underlying diffusion process contains a random vector. The marginal probability distributions of the proposed…
For the past two decades investors have observed long memory and highly correlated behavior of asset classes that does not fit into the framework of Modern Portfolio Theory. Custom correlation and standard deviation estimators consider…
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…
Multi-period measures of risk account for the path that the value of an investment portfolio takes. In the context of probabilistic risk measures, the focus has traditionally been on the magnitude of investment loss and not on the dimension…
We propose a new model for the forecasting of both the implied volatility surfaces and the underlying asset price. In the spirit of Guyon and Lekeufack (2023) who are interested in the dependence of volatility indices (e.g. the VIX) on the…
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…
This paper explores option portfolio optimization when the underlying returns are skew-elliptical t-distributed. We use the variance and value at risk (VaR) to measure portfolio risk. The novelty of our work is the departure from the…
We price European options in a class of models in which the volatility of the underlying risky asset depends on the short rate of interest. Our study results in an explicit pricing formula that depends on knowledge of a characteristic…
Volatility of financial stock is referring to the degree of uncertainty or risk embedded within a stock's dynamics. Such risk has been received huge amounts of attention from diverse financial researchers. By following the concept of…
We introduce the concept of virtual volatility. This simple but new measure shows how to quantify the uncertainty in the forecast of the drift component of a random walk. The virtual volatility also is a useful tool in understanding the…
We consider a market model where there are two levels of information. The public information generated by the financial assets, and a larger flow of information that contains additional knowledge about a random time. This random time can…
This article proposes a calibration framework for complex option pricing models that jointly fits market option prices and the term structure of variance. Calibrated models under the conventional objective function, the sum of squared…
We present a neural network (NN) approach to fit and predict implied volatility surfaces (IVSs). Atypically to standard NN applications, financial industry practitioners use such models equally to replicate market prices and to value other…
Implied volatilities form a well-known structure of smile or surface which accommodates the Bachelier model and observed market prices of interest rate options. For the swaptions that we study, three parameters are taken into account for…
We propose a hybrid model of portfolio credit risk where the dynamics of the underlying latent variables is governed by a one factor GARCH process. The distinctive feature of such processes is that the long-term aggregate return…
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 economics, insurance and finance, value at risk (VaR) is a widely used measure of the risk of loss on a specific portfolio of financial assets. For a given portfolio, time horizon, and probability $\alpha$, the $100\alpha\%$ VaR is…
In financial markets, accurately measuring the risk of future fluctuations in asset prices is of paramount importance. Studies such as Carr and Madan have shown that the expected value of the quadratic variation of log prices can be…
This paper provides the first and second order derivatives of any risk measures, including VaR and ES for continuous and discrete portfolio loss random variable variables. Also, we give asymptotic results of the first and second order…