This paper decomposes the risk premia of individual stocks into contributions from systematic and idiosyncratic risks. I introduce an affine jump-diffusion model, which accounts for both the factor structure of asset returns and that of the variance of idiosyncratic returns. The estimation is...

The VIX index is not only a volatility index but also a polynomial combination of all possible higher moments in market return distribution under the risk-neutral measure. This paper formulates the VIX as a linear decomposition of four fundamentally different elements: the realized variance...

We present a new approach to identifying asset price bubbles based on options data. Given their forward-looking nature, options are ideal instruments with which to investigate market expectations about the future evolution of asset prices, which are key to understanding price bubbles. By...

This paper provides tractable expressions for broad classes of standard transforms for the case of affine jump diffusions. Extending and unifying existing results, these include expressions for exponential, polynomial-log-linear, and polynomial transforms of a state vector in both conditional...

The pricing of vanilla options on underliers with cash dividends is a surprisingly contentious and active research subject, for both European or American exercise style. Neither on the listed options side (calls and puts) nor on the flow/structured side of longer-term vanillas or light exotics...

In assessing drivers of commodity prices and volatility at this stage of the current super-cycle in commodities (year 12 of a projected 25), it is vital to understand that production cost is a fundamental. Moreover, marginal production costs are among the most powerful drivers of commodity...

This study attempts to examine the price discovery process and volatility spillovers in Gold futures and spot markets of National Commodity Derivatives Exchange (NCDEX) by employing Johansen's Vector Error Correction Model (VECM) and the Bivariate ECM-EGARCH model. The empirical result confirms...

Volatility forecasts play a central role among equity risk measures. Besides traditional statistical models, modern forecasting techniques, based on machine learning, can readily be employed when treating volatility as a univariate, daily time-series. However, econometric studies have shown that...

We present a new term-structure model for commodity futures prices based on Trolle-Schwartz (2009), which we extend by incorporating seasonal stochastic volatility represented with of two different sinusoidal expressions. We obtain an analytical representation of the characteristic function of...

This paper analyses the role of liquidity in the price discovery process. Specifically, it focuses on the credit derivatives markets in the context of the subprime crisis. It presents a theoretical price discovery model for the ASP, bond and CDS markets and then it tests the model with data from...