We present a new option-pricing model, which explicitly captures the difference in the persistence of volatility under … historical and risk-neutral probabilities. The model also allows to capture the empirical properties of pricing kernels, such as … time-variation and the typical S-shape. We apply our model for two purposes. First, we analyze the risk preferences of …

uncertainty of the underlying. Transferring this intuition to volatility jumps requires that in affine models the variance jump … model-free analysis shows that the local variance-of-variance describes risk-neutral variance jump expectations well across … crises, whereas its long-run stochastic mean remains at lower levels. Second, the vol-of-vol risk-premium increases to 6 …

three popular stochastic volatility models (Heston, 1993; Bates, 1996; Heston and Nandi, 2'007, in addition to the …

options under low-dimensional stochastic volatility models. We derive multidimensional transforms which allow us to construct … efficient path-independent lattices for virtually all low-dimensional stochastic volatility models given in the literature … including one volatility factor-based stochastic volatility (SV) models, two volatility factors-based SV models, stochastic …

We apply a two-step strategy to forecast the dynamics of the volatility surface implicit in option prices to all …-post volatility of the minimum-variance portfolio is lower when compared with the equal-weighted portfolio and a minimum … realized Sharpe, Sortino and information ratios increase when the sample covariance matrix estimator is replaced with its …

incomplete market with stochastic volatility that is not perfectly hedgeable. By combining standard asymptotic expansion … technique for the underlying volatility process, we derive explicit expression for the solution of the FBSDE up to the third … order of volatility-of-volatility, which can be directly translated into the optimal investment strategy. We compare our …

Brownian motion. -- asymptotic uniformity ; local limit theorem ; volatility …

systematically with the volatility of stock returns. We allow for correlation between stock returns and their volatility (so …