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We focus on two particular aspects of model risk: the inability of a chosen model to fit observed market prices at a … given point in time (calibration error) and the model risk due to the recalibration of model parameters (in contradiction to … model risk in a common framework, and consider the trade-offs between them when choosing a model and the frequency with …
Persistent link: https://www.econbiz.de/10012422987
This paper investigates dynamic correlations of stock-bond returns for different stock indices and bond maturities. Evidence in the US shows that stock-bond relations are time-varying and display a negative trend. The stock-bond correlations are negatively correlated with implied volatilities in...
Persistent link: https://www.econbiz.de/10012292914
This paper studies the effect of variance swap in hedging volatility risk under the mean-variance criterion. We … variance swap can be used to hedge against the volatility risk. In the second problem, only the bank account and the stock can … be traded in the market, which is incomplete since the idiosyncratic volatility risk is unhedgeable. Under an exponential …
Persistent link: https://www.econbiz.de/10012293125
We provide ready-to-use formulas for European options prices, risk sensitivities, and P&L calculations under Lévy …
Persistent link: https://www.econbiz.de/10012019316
Systemic risk refers to the potential for a disruption in one part of a financial system to trigger a cascade of … adverse effects, impacting the functioning of the system. Despite the progress on novel systemic risk measures, research on … dynamics of systemic risk network structure and its community effect is still in its initial state. In this study, we utilize …
Persistent link: https://www.econbiz.de/10014497412
.Empirical results show that (i) Indonesia, followed by China and Mexico, are the main transmitters of sovereign credit risk volatility …. (ii) Among global factors, the volatility index (VIX), economic policy uncertainty (EPU), and global political risk (GPR …This paper aims to investigate the volatility spillovers among selected emerging economies' sovereign credit default …
Persistent link: https://www.econbiz.de/10014636376
This study employs asymmetric quantile regression to investigate the asymmetric impact of WTI crude oil prices and economic policy uncertainty (EPU) on stock market returns from May 2014 to December 2024 in oil-importing (China, India, Germany, Italy, Japan, USA, and South Korea) and...
Persistent link: https://www.econbiz.de/10015408943
real estate bubble burst, credit crunch and banking panics. As a response, extreme value theory (EVT) provides a set of … ready-made approaches to risk management analysis. However, EVT is usually applied to standardized returns to offer more …
Persistent link: https://www.econbiz.de/10010399734
It is impossible to discriminate between the commonly used stochastic volatility models of Heston, log-normal, and 3 …
Persistent link: https://www.econbiz.de/10011866497
time series and quantiles of the distribution of a predictable volatility proxy variable. They can be represented as … processes for the dynamics of the volatility proxy. The idea is illustrated using a Gaussian ARMA copula process and the … marginal and conditional characteristics of the model including quantile measures of risk. Estimation is carried out by …
Persistent link: https://www.econbiz.de/10012422995