We propose a nonparametric Bayesian approach for the estimation of the pricing kernel. Historical stock returns and option market data are combined through the Dirichlet Process (DP) to construct an option-adjusted physical measure. The precision parameter of the DP process is calibrated to the...

We investigate whether there are predictable patterns in the dynamics of higher order risk-neutral moments extracted from the market prices of S&P 500 index options. To this end, we conduct a horse race among alternative forecasting models within an out-of-sample context over various forecasting...

This paper provides an empirical study on the predictability of implied volatility using dataset collected from the London over-the-counter currency option market. The present work is motivated by the lack of empirical studies that address implied volatility characteristics across various...

VaR_Delta-Normal fails in two counts: subadditivity and potentially producing losses larger than its portfolio value. This paper solves the second inconsistency developing formulas derived from a put option, named PVaR_Delta-Normal and Put_Expected_Shortfall, PSF_Delta-Normal; the latter also...

Multivariate return distributions consistent with bilateral gamma marginals are formulated and termed multivariate bilateral gamma (MBG). Tail probability distances and Wasserstein Distances between return data, model simulations and their squares evaluate model performance. A full Gaussian...

We forecast monthly Value at Risk (VaR) and Conditional Value at Risk (CVaR) using option market data and four different econometric techniques. Independently from the econometric approach used, all models produce quick to estimate forward-looking risk measures that do not depend from the amount...

The existing replication policies at top finance journals are far weaker than the policies at top economics journals. This paper explores both the costs and benefits of having a stronger replication policy in the context of my failed 2010 initiative to develop a unified policy across all top...

I develop and test a model to study the interaction between the commodity and stock markets. This study attempts to clarify the debate about the effect of financialization on commodity markets. Theoretically, the futures risk premium is determined by hedging pressure, stock market returns, and...

The research paper is an effort to review the relevance of option implied volatility in the modern day financial markets. Volatility indices such as VIX, VFTSE and India VIX act as efficient predictors of market volatility over the near term. The role implied volatility plays in providing a...

This paper documents that option-implied tail risk in the U.S. financial sector predicts real economic activity. The predictability is found to be incremental to the information content in a stock price-based measure of financial sector tail risk. This finding holds both in- and out-of-sample...