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Stock Return and Cash Flow Predictability: The Role of Volatility Risk
Bollerslev, Tim; Xu, Lai; Zhou, Hao - School of Economics and Management, University of Aarhus - 2012
We examine the joint predictability of return and cash flow within a present value framework, by imposing the implications from a long-run risk model that allow for both time-varying volatility and volatility uncertainty. We provide new evidence that the expected return variation and the...
Persistent link: https://www.econbiz.de/10010851207
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The Factor Structure in Equity Options
Christoffersen, Peter; Fournier, Mathieu; Jacobs, Kris - School of Economics and Management, University of Aarhus - 2013
Principal component analysis of equity options on Dow-Jones firms reveals a strong factor structure. The first principal component explains 77% of the variation in the equity volatility level, 77% of the variation in the equity option skew, and 60% of the implied volatility term structure across...
Persistent link: https://www.econbiz.de/10010851218
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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
macroeconomic disaster of reasonable magnitude. We derive analytical solutions for defaultable bond prices and show that a single … set of structural parameters calibrated to the real economy and not to bond prices can simultaneously explain several key … widespread skewness in index options. Finally, our model reveals a nonlinear relationship between bond and option prices that …
Persistent link: https://www.econbiz.de/10010851248
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Commodity derivatives pricing with inventory effects
Bach, Christian; Dziubinski, Matt P. - School of Economics and Management, University of Aarhus - 2012
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...
Persistent link: https://www.econbiz.de/10009652368
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Risk and Return: Long-Run Relationships, Fractional Cointegration, and Return Predictability
Bollerslev, Tim; Osterrieder, Daniela; Sizova, Natalia; … - School of Economics and Management, University of Aarhus - 2011
The dynamic dependencies in financial market volatility are generally well described by a long-memory fractionally integrated process. At the same time, the volatility risk premium, defined as the difference between the ex-post realized volatility and the market’s ex-ante expectation thereof,...
Persistent link: https://www.econbiz.de/10009399368
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Picard Approximation of Stochastic Differential Equations and Application to Libor Models
Papapantoleon, Antonis; Skovmand, David - School of Economics and Management, University of Aarhus - 2010
calculation of derivative prices of different maturities using parallel computing. Secondly, the product terms occurring in the …
Persistent link: https://www.econbiz.de/10008462032
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Adding and Subtracting Black-Scholes: A New Approach to Approximating Derivative Prices in Continuous Time Models
Kristensen, Dennis; Mele, Antonio - School of Economics and Management, University of Aarhus - 2009
This paper develops a new systematic approach to implement approximate solutions to asset pricing models within multi-factor diffusion environments. For any model lacking a closed-form solution, we provide a solution obtained by expanding the analytically intractable model around a known...
Persistent link: https://www.econbiz.de/10005787546
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Volatility in Equilibrium: Asymmetries and Dynamic Dependencies
Bollerslev, Tim; Sizova, Natalia; Tauchen, George - School of Economics and Management, University of Aarhus - 2009
Stock market volatility clusters in time, carries a risk premium, is fractionally integrated, and exhibits asymmetric leverage effects relative to returns. This paper develops a first internally consistent equilibrium based explanation for these longstanding empirical facts. The model is cast in...
Persistent link: https://www.econbiz.de/10005787548
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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 index, can be hard to measure with accuracy due to the lack of precise prices for options with strikes in the tails of the return distribution. This is reflected in practice as the...
Persistent link: https://www.econbiz.de/10005440033
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Efficient and accurate log-Lévi approximations to Lévi driven LIBOR models
Papapantoleon, Antonis; Schoenmakers, John; Skovmand, David - School of Economics and Management, University of Aarhus - 2011
The LIBOR market model is very popular for pricing interest rate derivatives, but is known to have several pitfalls. In addition, if the model is driven by a jump process, then the complexity of the drift term is growing exponentially fast (as a function of the tenor length). In this work, we...
Persistent link: https://www.econbiz.de/10009148813