We consider a stochastic volatility model of the mean-reverting type to describe the evolution of a firm’s values … default probability. Our simulation results indicate that the stochastic volatility model tends to predict higher default … probabilities than the corresponding Merton model if a firm’s credit quality is not too low. Otherwise the stochastic volatility …

between stock returns and idiosyncratic return volatility at the firm level. By allowing for the volatility of the underlying … idiosyncratic choice variables to exhibit independent switches between a high and low volatility regime, we show that the options …' constant expected returns are composed of (i) a state dependent drift term that relates positively with the volatility regime …

While a great deal of attention has been focused on stochastic volatility in stock returns, there is strong evidence …, this can be seen from variation across time in the shape of Black-Scholes implied volatility smiles. This paper … volatility model with a regime-switching feature to allow for random changes in the parameters governing volatility of volatility …

We introduce a discrete-time model for log-return dynamics with observable volatility and jumps. Our proposal extends … the class of Realized Volatility heterogeneous auto-regressive gamma (HARG) processes adding a jump component with time … compensating for equity, volatility, and jump risks, the generating function under the risk-neutral measure inherits analytical …

heteroskedastic processes with fat-tailed innovations in returns and volatility. We provide a tractable risk neutralization framework …

volatility to capture the dynamics of the S&P 500 and three European equity indices. The stochastic volatility models are the … square root variance, GARCH, and log volatility diffusions, and each is augmented with price and volatility jump extensions … that GARCH diffusions augmented with correlated price and volatility jumps outperform other specifications with respect to …

and Heston's stochastic volatility model. Leveraging a total of five years of individual equity and index option data, and … accurate and less risky single instrument hedges than Heston's stochastic volatility model. A statistical resampling method …

This paper implements an algorithm that can be used to solve systems of Black-Scholes equations for implied volatility … for implied volatility and implied risk-free rate, the options are re-priced using these parameters in the Black … risk-free rate model is better for predicting future evolutions in model-free implied volatility as measured by the VIX …

In this paper we explore the dynamics of Implied Volatility Surfaces (IVS) both in a single-currency framework, and in …

-affine volatility dynamics. We use extensive empirical data sets to study how infinite-activity Variance Gamma and Normal Inverse … Gaussian jumps with affine and non-affine volatility dynamics improve goodness of fit and option pricing performance. With …