A State Price Density (SPD) is the density function of a risk neutral equivalent martingale measure for option pricing, and is indispensible for exotic option pricing and portfolio risk management. Many approaches have been proposed in the last two decades to calibrate a SPD using financial...

The analysis of return series from financial markets is often based on the Peaks-over-threshold (POT) model. This model assumes independent and identically distributed observations and therefore a Poisson process is used to characterize the occurrence of extreme events. However, stylized facts...

We introduce the notion of realized copula. Based on assumptions of the marginal distri- butions of daily stock returns and a copula family, realized copula is dened as the copula structure materialized in realized covariance estimated from within-day high-frequency data. Copula parameters are...

In this paper, we review the most common specifications of discrete-time stochas- tic volatility (SV) models and illustrate the major principles of corresponding Markov Chain Monte Carlo (MCMC) based statistical inference. We provide a hands-on ap- proach which is easily implemented in empirical...

Risk management and the thorough understanding of the relations between financial markets and the standard theory of macroeconomics have always been among the topics most addressed by researchers, both financial mathematicians and economists. This work aims at explaining investors’ behavior...

We propose a general class of Markov-switching-ARFIMA processes in order to combine strands of long memory and Markov-switching literature. Although the coverage of this class of models is broad, we show that these models can be easily estimated with the DLV algorithm proposed. This algorithm...

A new test for constant correlation is proposed. Based on the bivariate Student-t distribution, this test is derived as Lagrange multiplier (LM) test. Whereas most of the traditional tests (e.g. Jennrich, 1970, Tang, 1995 and Goetzmann, Li & Rouwenhorst, 2005) specify the unknown correlations as...

This paper proposes a new econometric approach to disentangle two distinct response patterns of the yield curve to monetary policy announcements. Based on cojumps in intraday tick-data of a short and long term interest rate, we develop a day-wise test that detects the occurrence of a significant...

We propose a new estimator for the spot covariance matrix of a multi-dimensional continuous semi-martingale log asset price process which is subject to noise and non-synchronous observations. The estimator is constructed based on a local average of block-wise parametric spectral covariance...

We introduce a copula-based dynamic model for multivariate processes of (non-negative) high-frequency trading variables revealing time-varying conditional variances and correlations. Modeling the variables’ conditional mean processes using a multiplicative error model we map the resulting...