This paper presents a new approach to look at equity market valuations. The paper formulates a derivative of three valuation based ratios widely used by investors and fund managers. The derivative “Equity Market Valuation Index” converts valuation ratios in to an index that rages between...

In this paper we propose a new multivariate GARCH model with time-varying conditional correlation structure. The approach adopted here is based on the decomposition of the covariances into correlations and standard deviations. The time-varying conditional correlations change smoothly between two...

The volatility implied by observed market prices as a function of the strike and time to maturity form an Implied Volatility Surface (IV S). Practical applications require reducing the dimension and characterize its dynamics through a small number of factors. Such dimension reduction is...

Empirical studies have shown that a large number of financial asset returns exhibit fat tails and are often characterized by volatility clustering and asymmetry. Also revealed as a stylized fact is Long memory or long range dependence in market volatility, with significant impact on pricing and...

We propose a novel way to assess information processing in a complex environment of market fragmentation. We take a different angle from the price discovery literature, and investigate information processing in the stochastic process driving stock's volatility (volatility discovery). We show...

We propose a multiplicative dynamic factor structure for the conditional modelling of the variances of an N-dimensional vector of financial returns. We identify common and idiosyncratic conditional volatility factors. The econometric framework is based on an observation-driven time series model...

The volatility of equity and foreign exchange market is an important input to portfolio selection and to asset pricing models. Many investment decisions and valuation of derivatives frequently rely on predictions of volatility. In this paper we review the existing empirical literature in...

We assess the predictive accuracy of a large number of multivariate volatility models in terms of pricing options on the Dow Jones Industrial Average. We measure the value of model sophistication in terms of dollar losses by considering a set 248 multivariate models that differ in their...

The episodes of stock market crises in Europe and the U.S.A. since the year 2000, and the fragility of the New Technology sector after the explosion of the speculative bubble, have sparked the interest of researchers in understanding and in modeling this market’s high volatility to prevent...