We introduce tractable models for commodity derivatives pricing with inventory and volatility effects, and illustrate with applications to the oil market. We contribute to the existing literature in several respects. First, whereas the previous literature uses futures data for investigating the...

We introduce a multivariate GARCH model that utilizes and models realized measures of volatility and covolatility. The realized measures extract information contained in high-frequency data that is particularly beneficial during periods with variation in volatility and covolatility. Applying the...

We analyze the applicability of economic criteria for volatility forecast evaluation based on unconditional measures of portfolio performance. The main theoretical finding is that such unconditional measures generally fail to rank conditional forecasts correctly due to the presence of a bias...

Recently, consistent measures of the ex-post covariation of financial assets based on noisy high-frequency data have been proposed. A related strand of literature focuses on dynamic models and covariance forecasting for high-frequency data based covariance measures. The aim of this paper is to...

This paper proposes a new method for forecasting covariance matrices of financial returns. The model mixes volatility forecasts from a dynamic model of daily realized volatilities estimated with high-frequency data with correlation forecasts based on daily data. This new approach allows for...

We introduce the Simplified Component GARCH (SC-GARCH) option pricing model, show and discuss sufficient conditions for non-negativity of the conditional variance, apply it to low-frequency and high-frequency financial data, and consider the option valuation, comparing the model performance with...

In this paper a new GARCH–M type model, denoted the GARCH-AR, is proposed. In particular, it is shown that it is possible to generate a volatility-return trade-off in a regression model simply by introducing dynamics in the standardized disturbance process. Importantly, the volatility in the...

A new semiparametric estimator for an empirical asset pricing model with general nonparametric risk-return tradeoff and a GARCH process for the underlying volatility is introduced. The estimator does not rely on any initial parametric estimator of the conditional mean function, and this feature...