Starting from a no-dynamic-arbitrage principle that imposes that trading costs should be non-negative on average and a simple model for the evolution of market prices, we demonstrate a relationship between the shape of the market impact function describing the average response of the market...

The present paper addresses the problem of computing implied volatilities of options written on a domestic asset based on implied volatilities of options on the same asset expressed in a foreign currency and the exchange rate. It proposes an original method together with explicit formulae to...

It is known that Heston's stochastic volatility model exhibits moment explosion, and that the critical moment s+ can be obtained by solving (numerically) a simple equation. This yields a leading-order expansion for the implied volatility at large strikes: σBS(k, T)2T ∼ Ψ(s+ - 1) × k (Roger...

The motivation for this paper is to investigate the use of alternative novel neural network architectures when applied to the task of forecasting and trading the Euro/Dollar (EUR/USD) exchange rate. This is done by benchmarking three different neural network designs representing a Higher Order...

In this paper, we estimate the term structure of interest rate volatilities. It is well known that volatility is the main input for option and other fixed income derivatives valuation models. However, we find that volatility estimates depend significantly on the model used to estimate the zero...

We present a new and general technique for obtaining closed-form expansions for prices of options in the Heston model, in terms of Black-Scholes prices and Black-Scholes Greeks up to arbitrary order. We then apply the technique to solve, in detail, the cases for the second-order and third-order...

This article explores the relationships between several forecasts for the volatility built from multi-scale linear ARCH processes, and linear market models for the forward variance. This shows that the structures of the forecast equations are identical, but with different dependencies on the...

Price jumps are mostly related to investor reactions to unexpected extreme news. We perform an event study of price movements after jumps to analyse if investors' reactions are affected by psychological biases. We employ recent non-parametric methods based on intraday returns to separate large...

This paper examines the dynamic correlation structure between A-share and B-share stock returns based on three different measures of correlation coefficients. Testing the models by employing daily stock-return data for the period from 1996 through 2003, we reach the following empirical...

We model the volatility of a single risky asset using a multifactor (matrix) Wishart affine process, recently introduced in finance by Gourieroux and Sufana. As in standard Duffie and Kan affine models the pricing problem can be solved through the Fast Fourier Transform of Carr and Madan. A...