This paper provides and empirical examination of four European equity indices between 1991 and 2005. We investigate the ability of fifteen different GARCH models to capture the characteristics of historical daily returns effectively and generate realistic implied volatility skews. Using many...

This paper develops a method for pricing bivariate contingent claims under General Autoregressive Conditionally Heteroskedastic (GARCH) process. As the association between the underlying assets may vary over time, the dynamic copula with time-varying parameter offers a better alternative to any...

The study of significant deterministic seasonal patterns in financial asset returns is of high importance to academia and investors. This paper analyzes the presence of seasonal daily patterns in the VIX and S&P 500 returns series using a trigonometric specification. First, we show that, given...

This paper examines nonlinearities in the dynamics of volatility expectations using benchmarks of implied volatility for the US and Japanese markets. The evidence from Markov regime-switching models suggests that volatility expectations are likely to be governed by regimes featuring a long...

When choosing evaluation measures for variance and covariance forecasts one has to consider what the actual purpose of these forecasts is. In this paper we extend the results of Gibson and Boyer (1998) by looking at portfolios of rainbow currency options and how simulated trading of such options...

We investigate the role of crude oil spot and futures prices in the process of price discovery by using a cost-of-carry model with an endogenous convenience yield and daily data over the period from January 1990 to December 2008. We provide evidence that futures markets play a more important...

This paper presents a mixture multiplicative error model with a time-varying probability between regimes. We model the implied volatility derived from call and put options on the USD/EUR exchange rate. The daily first difference of the USD/EUR exchange rate is used as a regime indicator, with...

GARCH option pricing models have the advantage of a well-established econometric foundation. However, multiple states need to be introduced as single state GARCH and even Levy processes are unable to explain the term structure of the moments of financial data. We show that the continuous time...

We propose a simple model in which realized stock market return volatility and implied volatility backed out of option prices are subject to common level shifts corresponding to movements between bull and bear markets. The model is estimated using the Kalman filter in a generalization to the...

Fluctuations in commodity prices are a major concern to many market participants. This paper uses realized volatility methods to calculate daily volatility and correlation estimates for three grain futures prices (corn, soybean and wheat). The realized volatility estimates exhibit the properties...