The extraordinary oil price volatility of the 2007-08 period has resulted in special attention being focused on the role of financial market factors in determining physical oil prices. We survey the literature to assess the state of research on this topic. The literature provides substantial...

This paper estimates how the shape of the implied volatility smile and the size of the variance risk premium relate to parameters of GARCH-type time-series models measuring how conditional volatility responds to return shocks. Markets in which return shocks lead to large increases in conditional...

This paper explores differences in the impact of equally large positive and negative surprise return shocks in the aggregate U.S. stock market on: 1) the volatility predictions of asymmetric time series models, 2) implied volatility, and 3) realized volatility. Both asymmetric time series models...

Option pricing models and longer-term value-at-risk models typically require volatility forecasts over horizons considerably longer than the data frequency. These are generally generated from short-horizon forecasts by successive forward substitution. We document deficiencies with the resulting...

Ratio spreads in which a trader buys calls (or puts) at one strike and sells an unequal number of calls at a different strike are among the most actively traded option combinations yet are only briefly mentioned in most derivatives texts and have received no attention in the research literature....

In many markets, changes in the spot price are partially predictable. We show that when this is the case: 1) although unbiased, traditional regression estimates of the minimum variance hedge ratio are inefficient, 2) estimates of the riskiness of both hedged and unhedged positions are biased...

We document several problems with GARCH type model predictions over the multi-day horizons common to option valuations and value-at-risk models. One, GARCH model forecasts of the return standard deviation - the most common volatility measure and the most appropriate for option valuation and...

The paper compares the forecasting ability of the most popular volatility forecasting models and develops an alternative. The comparison of existing models focuses on four issues: 1) the relative weighting of recent versus older observations, 2) the estimation criteria, 3) the trade-off in terms...

Ratio spreads in which a trader buys calls (or puts) at one strike and sells an unequal number of calls at a different strike are among the most actively traded option combinations yet are only briefly mentioned in most derivatives texts and have received no attention in the research literature....