We study a new class of three-factor affine option pricing models with interdependent volatility dynamics and a … stochastic skewness component unrelated to volatility shocks. These properties are useful in order (i) to model a term structure … of implied volatility skews more consistent with the data and (ii) to capture comovements of short and long term skews …

) lays the groundwork for the assessment of a firm's credit risk by its default probability. Doubtlessly, the volatility of … approach with conditional volatility models, we empirically examine in this article that the specification of conditional … volatility affects the probability of default and therefor the credit rating. More precisely, we show on German stock market data …

prices caused by stochastic volatility. -- option pricing ; autoregression ; heteroskedasticity ; GARCH ; leverage effect …

Volatility long memory is a stylized fact that has been documented for a long time. Existing literature have two ways … to model volatility long memory: component volatility models and fractionally integrated volatility models. This paper … GARCH(1, 1) model by generating 37% less option pricing errors. With stronger volatility persistence, it also dominates a …

Hull-White stochastic volatility models. Regardless of the innovations used, the GARCH implied diffusion limit based on the … non-zero market price of volatility risk which is proportional to the market price of the equity risk, where the constant …

models with time varying volatility. In this paper we consider models of this class and examine their potential when it comes …

models with time varying volatility. In this paper we consider models of this class and examine their potential when it comes …

This study compares the efficacy of Black–Scholes implied volatility (BSIV) with model-free implied volatility (MFIV …) in providing volatility forecasts for 13 North American, European, and Asian stock market indexes: S&P 500 (United States … Kingdom). In-sample volatility forecasts show that both BSIV and MFIV significantly improve the fit of a GJR-GARCH(1,1) model …