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The Shape and Term Structure of the Index Option Smirk: Why Multifactor Stochastic Volatility Models Work so Well

Christoffersen, Peter; Heston, Steven; Jacobs, Kris - School of Economics and Management, University of Aarhus - 2009

State-of-the-art stochastic volatility models generate a "volatility smirk" that explains why out-of-the-money index puts have high prices relative to the Black-Scholes benchmark. These models also adequately explain how the volatility smirk moves up and down in response to changes in risk....

Persistent link: https://www.econbiz.de/10005037435

Habit-based Asset Pricing with Limited Participation Consumption

Bach, Christian; Møller, Stig Vinther - School of Economics and Management, University of Aarhus - 2010

non-assetholder consumption, as well as the standard aggregate consumption series commonly used in the CCAPM literature …

Persistent link: https://www.econbiz.de/10008509120

Conservatism in Corporate Valuation

Bach, Christian - School of Economics and Management, University of Aarhus - 2011

Using a CCAPM based risk adjustment model, consistent with general asset pricing theory, I perform corporate valuations … based on the results of the respective models. The CCAPM model performs substantially better than the CAPM based model when … investment strategies, but also in this setting the CCAPM model outperforms the CAPM model in most dimensions. I further show …

Persistent link: https://www.econbiz.de/10009293656

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

Cross-sectional consumption-based asset pricing: The importance of consumption timing and the inclusion of severe crises

Engsted, Tom; Møller, Stig V. - School of Economics and Management, University of Aarhus - 2011

By using a beginning-of-period timing convention for consumption, and by including the Great Depression years in the analysis, we show that on annual data from 1926 to 2009 a standard contemporaneous consumption risk model goes a long way in explaining the size and value premiums in...

Persistent link: https://www.econbiz.de/10008836604

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

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 respectively. Then the model is applied to 10 Asia-Pacific stock...

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 two components. One of these components is a long-run component, and it can be modeled as fully persistent. The other component is short-run and has a zero mean. Our model can be...

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