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Rare Disasters and Credit Market Puzzles

Christoffersen, Peter; Du, Du; Elkamhi, Redouane - School of Economics and Management, University of Aarhus - 2013

empirical regularities in credit markets. Our model captures the empirical level and volatility of credit spreads, generates a …

Persistent link: https://www.econbiz.de/10010851248

Construction and Interpretation of Model-Free Implied Volatility

Andersen, Torben G.; Bondarenko, Oleg - School of Economics and Management, University of Aarhus - 2007

The notion of model-free implied volatility (MFIV), constituting the basis for the highly publicized VIX volatility … more compatible with the related concept of corridor implied volatility (CIV). We provide a comprehensive derivation of the … CIV measure and relate it to MFIV under general assumptions. In addition, we price the various volatility contracts, and …

Persistent link: https://www.econbiz.de/10005440033

Pricing Volatility of Stock Returns with Volatile and Persistent Components

Zhu, Jie - School of Economics and Management, University of Aarhus - 2008

In this paper a two-component volatility model based on the component's first moment is introduced to describe the … dynamic of speculative return volatility. The two components capture the volatile and persistent part of volatility … empirical results show that the persistent component accounts much more for volatility dynamic process than the volatile …

Persistent link: https://www.econbiz.de/10005440035

Inference for the jump part of quadratic variation of Itô semimartingales

Veraart, Almut - School of Economics and Management, University of Aarhus - 2008

Recent research has focused on modelling asset prices by Itô semimartingales. In such a modelling framework, the quadratic variation consists of a continuous and a jump component. This paper is about inference on the jump part of the quadratic variation, which can be estimated by the difference...

Persistent link: https://www.econbiz.de/10005440041

Option Valuation with Long-run and Short-run Volatility Components

Christoffersen, Peter; Jacobs, Kris; Ornthanalai, Chayawat - School of Economics and Management, University of Aarhus - 2008

This paper presents a new model for the valuation of European options, in which the volatility of returns consists of … easy valuation of European options. The model substantially outperforms a benchmark single-component volatility model that … smirk and the path of spot volatility, but its most distinctive feature is its ability to model the volatility term …

Persistent link: https://www.econbiz.de/10005440047

Return predictability and intertemporal asset allocation: Evidence from a bias-adjusted VAR model

Engsted, Tom; Pedersen, Thomas Q. - School of Economics and Management, University of Aarhus - 2008

We extend the VAR based intertemporal asset allocation approach from Campbell et al. (2003) to the case where the VAR parameter estimates are adjusted for small-sample bias. We apply the analytical bias formula from Pope (1990) using both Campbell et al.'s dataset, and an extended dataset with...

Persistent link: https://www.econbiz.de/10005440049

Impact of time–inhomogeneous jumps and leverage type effects on returns and realised variances

Veraart, Almut E. D. - School of Economics and Management, University of Aarhus - 2008

when the logarithmic asset price is given by a Lévy–driven stochastic volatility model. In such a model, the realised …

Persistent link: https://www.econbiz.de/10005440052

Forward-Looking Betas

Christoffersen, Peter; Jacobs, Kris; Vainberg, Gregory - School of Economics and Management, University of Aarhus - 2007

Few issues are more important for finance practice than the computation of market betas. Existing approaches compute market betas using historical data. While these approaches differ in terms of statistical sophistication and the modeling of the time-variation in the betas, they are all...

Persistent link: https://www.econbiz.de/10005440055

Mean Reversion in US and International Short Rates

Christiansen, Charlotte - School of Economics and Management, University of Aarhus - 2008

In this paper we extend the CKLS one factor short rate model to include extreme value nonlinear mean reversion. Similarly to a recent stock market study, we include the smallest short rate during the previous year in the mean equation. We investigate the US and five other major markets (Canada,...

Persistent link: https://www.econbiz.de/10005440056

An iterated GMM procedure for estimating the Campbell-Cochrane habit formation model, with an application to Danish stock and bond returns

Engsted, Tom; Møller, Stig V. - School of Economics and Management, University of Aarhus - 2008

We suggest an iterated GMM approach to estimate and test the consumption based habit persistence model of Campbell and Cochrane (1999), and we apply the approach on annual and quarterly Danish stock and bond returns. For comparative purposes we also estimate and test the standard CRRA model. In...

Persistent link: https://www.econbiz.de/10005440066