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 …

Volatility tests are an alternative to regression tests for evaluating the joint null hypothesis of market efficiency … taken to be. By considering tests based on conditional volatility bounds, we show that if the alternative is that one could … conditional volatility tests.If the application is to spot and forward markets, then the most powerful conditional volatility test …

high volatility are followed by periods of low volatility. For instance, the turbulent 1970s were followed by the much more … tranquil times of the great moderation from 1984 to 2007. Modeling these movements in volatility is important to understand the … different mechanisms proposed in the literature to generate changes in volatility similar to the ones observed in the data …

We develop and implement a new method for maximum likelihood estimation in closed-form of stochastic volatility models … unobservable volatility state, to an approximate likelihood procedure where the volatility state is replaced by the implied … volatility of a short dated at-the-money option. We find that the approximation results in a negligible loss of accuracy. We …

We propose using the price range in the estimation of stochastic volatility models. We show theoretically, numerically …, and empirically that the range is not only a highly efficient volatility proxy, but also that it is approximately Gaussian …-maximum likelihood estimation produces simple and highly efficient estimates of stochastic volatility models and extractions of latent …

stochastic volatility. Our approach uses linear regression to reduce the dimension of the numerical optimization problem yet it … cross-section of yields well but not volatility while unspanned models fit volatility at the expense of fitting the cross-section …

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 …

This paper uses a dynamic optimization model to estimate the welfare gains of hedging against commodity price risk for … commodity-exporting countries. We show that the introduction of hedging instruments such as futures and options enhances … domestic welfare through two channels. First, by reducing export income volatility and allowing for a smoother consumption path …