Equity basket correlation is an important risk factor. It characterizes the strength of linear dependence between assets and thus measures the degree of portfolio diversification. It can be estimated both under the physical measure from return series, and under the risk neutral measure from...

Traditionally volatility is viewed as a measure of variability, or risk, of an underlying asset. However recently investors began to look at volatility from a different angle. It happened due to emergence of a market for new derivative instruments - variance swaps. In this paper first we...

This paper offers a new method for estimation and forecasting of the volatility of financial time series when the stationarity assumption is violated. Our general, local parametric approach particularly applies to general varying-coefficient parametric models, such as GARCH, whose coefficients...

We consider univariate nonparametric regression. Two standard nonparametric regression function estimates are kernel estimates and nearest neighbor estimates. Mack (1981) noted that both methods can be defined with respect to a kernel or weighting function, and that for a given kernel and a...