We propose a structural model for durations between events and (a vector of) associated marks, using a multivariate Brownian motion. Successive passage times of one latent Brownian component relative to random boundaries define durations. The other, correlated, Brownian components generate the...

We develop an Arbitrage Pricing Theory framework extension to study the pricing of squared returns/volatilities. We analyze the interplay between factors at the return level and those in idiosyncratic variances. We confirm the presence of a common idiosyncratic variance factor, but do not find...

Stock and options markets can disagree about a stock's value because of informed trading in options and/or price pressure in the stock. The predictability of stock returns based on this cross- market discrepancy in values is especially strong when accompanied by stock price pressure, and it does...

Estimation of risk-neutral (RN) moments is of great interest to both academics and practitioners. We study 1) the model-free measure of RN moments by Bakshi, Kapadia and Madan (2003); 2) RN moments that are used in the VIX and SKEW index by the Chicago Board Options Exchange; 3) nonparametric RN...

Time-varying leverage driven by common shocks to firm asset returns introduces a factor structure in idiosyncratic equity return volatilities (IVOL). In a standard dynamic capital structure model in which the CAPM holds for asset returns, we show that three factors explain the IVOL...

Risk-neutral traders executing derivative trades on behalf of portfolio managers maximize their expected profit compared to trading at pre-determined times by timing trades, using the quickly changing risk exposures of derivative baskets. The optimal order submission strategy is a sequence of...

Regulators often set value-at-risk (VaR) constraints to limit the portfolio risk of institutional investors. For some investors, notably pension funds, the VaR constraint is enforced over a horizon which is significantly shorter than the investment horizon of the investor. Our paper aims to...