The illiquidity of long-maturity options has made it difficult to study the term structures of option spanning portfolios. This paper proposes a new estimation and inference framework for these option-implied term structures that addresses long-maturity illiquidity. By building a sieve estimator...

In this paper, we investigate the dynamic response of stock market volatility to changes in monetary policy. Using a vector autoregressive model, our findings reveal a significant and asymmetric response of stock returns and volatility to monetary policy shocks. Although the increase in the...

This paper introduces a unified parametric modeling approach for time-varying market betas that can accommodate continuous-time diffusion and discrete-time series models based on a continuous-time series regression model to better capture the dynamic evolution of market betas.We call this the...

We develop a novel machine learning method to estimate large dimensional time-varying GMM models via our newly designed ridge fusion regularization scheme. Our method is a one-step procedure and allows for abrupt, smooth and dual type time variation with a fast rate of convergence. It...

This paper examines the joint dynamics of a system of asset returns by describing and implementing a factor multivariate stochastic volatility (factor MSV) model. The foundation for the model discussed here is the work of Doz and Renault (2006). Despite its attractive design, that model has not...

This paper studies the information content of the S&P 500 and VIX markets on the volatility of the S&P 500 returns. We estimate a flexible affine model based on a joint time series of underlying indexes and option prices on both markets. An extensive model specification analysis reveals that...

This paper provides empirical evidence that volatility markets are integrated through the time-varying term structure of variance risk premia. These risk premia predict the returns from selling volatility for different horizons, maturities, and products, including variance swaps, straddles, and...

We introduce econometric methods to perform estimation and inference on the permanent and transitory components of the stochastic discount factor (SDF) in dynamic Markov environments. The approach is nonparametric in that it does not impose parametric restrictions on the law of motion of the...

This chapter reviews the rapid advances in foreign exchange volatility modeling made in the last three decades. Academic researchers have sought to fit the three major characteristics of foreign exchange volatility: intraday periodicity, autocorrelation and discontinuities in prices. Early...

We propose a new methodology to estimate the empirical pricing kernel implied from option data. In contrast to most of the studies in the literature that use an indirect approach, i.e. first estimating the physical and risk-neutral densities and obtaining the pricing kernel in a second step, we...