It is argued that the growth in the breadth of option strikes traded after the financial crisis of 2008 poses difficulties for the use of Fourier inversion methodologies in volatility surface calibration. Continuous time Markov chain approximations are proposed as an alternative. They are shown...

Comparisons are made of the CBOE skew index with those derived from parametric skews of bilateral gamma models and from the differentiation of option implied characteristic exponents. Discrepancies may be attributed to strike discretization in evaluating prices of powered returns. The remedy...

Prudent upper and lower valuations from the literature on arbitrage free two price economies provide risk characteristics driving required returns. The risk characteristics assess the risk of price fluctuations. The difference between the upper and lower prudent valuations can be viewed as a...

We propose a model of volatility tail behavior, in which the pricing measure dominates the physical measure in both tails of the volatility distribution and, hence, the derived pricing kernel exhibits an increasing and decreasing region in the volatility dimension. The model features investors...

For underlying asset motions calibrating skewness and kurtosis beyond the volatility it becomes possible to consider these entities as responding to their observations in past data. Models with stochastic skewness and kurtosis are constructed by allowing the second, third and fourth power...

Time changes of Brownian motion impose restrictive jump structures in the motion of asset prices. Quadratic variations also depart from time changes. Joint Laplace Fourier transforms for quadratic variation and the stock are developed. They are used to study the multiple of the cap strike over...

We contrast two different asset pricing models, where the pricing kernel either (i) increases in the volatility dimension, reflecting investors' aversion to volatility, or (ii) could be non-monotonic in volatility, reflecting heterogeneity in investors' beliefs. The two models yield opposite...

This discussion paper resulted in an article in the <I>Journal of the American Statistical Association</I> (2007). Vol. 102, issue 477, pages 16-27.<p> Novel periodic extensions of dynamic long memory regression models with autoregressive conditional heteroskedastic errors are considered for the analysis...</p></i>

Novel periodic extensions of dynamic long memory regression models with autoregressive conditional heteroskedastic errors are considered for the analysis of daily electricity spot prices. The parameters of the model with mean and variance specifications are estimated simultaneously by the method...

Novel periodic extensions of dynamic long memory regression models with autoregressive conditional heteroskedastic errors are considered for the analysis of daily electricity spot prices. The parameters of the model with mean and variance specifications are estimated simultaneously by the method...