This paper develops a method for option hedging which is consistent with time-varying preferences and probabilities … probability, while probabilities are derived from an estimated stochastic volatility model of the form GARCH components with … the spread between implied and objective volatilities. Hedging results reveal that typical hedging techniques for out …

-dependent options and options on assets with stochastic volatility and jumps. " …

of stochastic volatility and jumps for option valuation. This example highlights the impact on option 'smirks' of the … joint distribution of jumps in volatility and jumps in the underlying asset price, through both amplitude as well as jump …

risks. Portfolios hedging macro uncertainty have historically earned zero or even significantly positive returns, while … uncertainty. The results dictate the role of uncertainty and volatility in structural models and we show they are consistent with …

price volatility and "sentiment" fluctuations. We construct a general-equilibrium model of sentiment. In it, there are two …

unconditional moments of asset returns, imply a lower bound on the volatility of the intertemporal marginal rate of substitution. We … short time series of consumption data undermines the ability of tests that use the restrictions implied by the volatility …

We show that firms' idiosyncratic volatility obeys a strong factor structure and that shocks to the common factor in … idiosyncratic volatility (CIV) are priced. Stocks in the lowest CIV-beta quintile earn average returns 5.4% per year higher than … heterogeneous-agent model. In the model, CIV is a priced state variable because an increase in idiosyncratic firm volatility raises …

This paper develops a methodology for testing the term structure of volatility forecasts derived from stochastic … volatility models, and implements it to analyze models of S&P 500 index volatility. Volatility models are compared by their … ability to hedge options positions sensitive to the term structure of volatility. Overall, the most effective hedge is a Black …