Following a trend of sustained and accelerated growth, the VIXfutures and options market has become a closely followed, active andliquid market. The standard stochastic volatility models | whichfocus on the modeling of instantaneous variance | are unable to t theentire term structure of VIX...

We develop a discrete-time stochastic volatility option pricing model, which exploits the informationcontained in high-frequency data. The Realized Volatility (RV) is used as a proxy of the unobservablelog-returns volatility. We model its dynamics by a simple but effective long-memory process:...

We model the dynamics of asset prices and associated derivatives by considerationof the dynamics of the conditional probability density process for the value of an assetat some specied time in the future. In the case where the asset is driven by Brownianmotion, an associated \master equation"...

We study a new class of three-factor affine option pricing models with interdependent volatilitydynamics and a stochastic skewness component unrelated to volatility shocks. Theseproperties are useful in order (i) to model a term structure of implied volatility skews moreconsistent with the data...

We study the exponential utility indifference valuation of a contingent claim B in an incomplete market driven by two Brownian motions. The claim depends on a nontradable asset stochastically correlated with the traded asset available for hedging. We use martingale arguments to provide upper and...

This paper studies modelling and existence issues for market models of option prices in a continuous-time framework with one stock, one bond and a family of European call options for one fixed maturity and all strikes. After arguing that (classical) implied volatilities are ill-suited for...

In this paper the performance of locally risk-minimizing hedge strategies for European options in stochastic volatility models is studied from an experimental as well as from an empirical perspective. These hedge strategies are derived for a large class of diffusion-type stochastic volatility...

This paper derives an analytic expression for the distribution of the average volatility in the stochastic volatility model of Hull and White. This result answers a longstanding question, posed by Hull and White (Journal of Finance 42, 1987), whether such an analytic form exists. Our findings...

We show that a simple equilibrium model with uncertain growth is able to simultaneously generate patterns in implied volatility and risk aversion that are similar to the ones observed in the data. In addition, the model produces an implied pricing kernel that is increasing for particular levels...

This paper studies modelling and existence issues for market models of stochastic implied volatility in a continuous-time framework with one stock, one bank account and a family of European options for all maturities with a fixed payoff function h. We first characterize absence of arbitrage in...