Return distributions in the class of pure jump limit laws are observed to reflect numerous asymmetries between the upward and downward motions of asset prices. The return distributions are modeled by self decomposable parametric laws with all parameters continuously responding to each other....

Market clichés assert that markets take escalators up and elevators down. The observation suggests differentiating models for up and down moves. Non-diffusive models allow for this and we model the move as the difference of two independent mean reverting increasing processes driven by gamma...

In this paper, we review the most common specifications of discrete-time stochastic volatility (SV) models and illustrate the major principles of corresponding Markov Chain Monte Carlo (MCMC) based statistical inference. We provide a hands-on ap proach which is easily implemented in empirical...

We propose a local adaptive multiplicative error model (MEM) accommodating timevarying parameters. MEM parameters are adaptively estimated based on a sequential testing procedure. A data-driven optimal length of local windows is selected, yielding adaptive forecasts at each point in time....

In this paper, we review the most common specifications of discrete-time stochastic volatility (SV) models and illustrate the major principles of corresponding Markov Chain Monte Carlo (MCMC) based statistical inference. We provide a hands-on ap proach which is easily implemented in empirical...

We propose a local adaptive multiplicative error model (MEM) accommodating timevarying parameters. MEM parameters are adaptively estimated based on a sequential testing procedure. A data-driven optimal length of local windows is selected, yielding adaptive forecasts at each point in time....

A Markov chain with an expanding non-uniform grid matching risk neutral marginal distributions is constructed. Conditional distributions of the chain are in the variance gamma class with prespecified skewness and excess kurtosis. Time change and space scale volatilities are calibrated from...

When firms access unbounded liability exposures and are granted limited liability, then an all equity firm holds a call option, whereby it receives a free option to put losses back to the taxpayers. We call this option the taxpayer put, where the strike is the negative of the level of reserve...

Single factor asset pricing models face two major hurdles: the problematic time-series properties of the ex ante market risk premium and the inability of the risk measure to account for a substantial degree of the cross-sectional variation of expected excess returns. We provide an explanation...

Procedures for constructing the characteristic functions of risk neutral densities, from option prices at a fixed maturity, are developed. The logarithm of these characteristic functions are shown to synthesize the Fourier transform of formal Lévy tails. The formal Lévy tails are actual Lévy...