This paper offers a new approach to estimating time-varying covariance matrices in the framework of the diagonal-vech version of the multivariate GARCH(1,1) model. Our method is numerically feasible for large-scale problems, produces positive semidefinite conditional covariance matrices, and...

We use a novel pricing model to imply time series of diffusive volatility and jump intensity from S&P 500 index options. These two measures capture the ex ante risk assessed by investors. Using a simple general equilibrium model, we translate the implied measures of ex ante risk into an ex ante...

Minimum-variance hedging of a contingent claim in discrete time is suboptimal when the contingent claim is hedged for multiple periods and the objective is to maximize the expected utility of cumulative hedging errors. This is because the hedging errors are not independent. The difference...