This paper introduces a new class of stochastic volatility models which allows for stochastic volatility of volatility (SVV): Volatility modulated non-Gaussian Ornstein-Uhlenbeck (VMOU) processes. Various probabilistic properties of (integrated) VMOU processes are presented. Further we study the...

This paper studies inference for the realized Laplace transform (RLT) of volatility in a fixed‐span setting using bootstrap methods. Specifically, since standard wild bootstrap procedures deliver inconsistent inference, we propose a local Gaussian (LG) bootstrap, establish its first‐order...

We employ a wavelet approach and conduct a time-frequency analysis of dynamic correlations between pairs of key traded assets (gold, oil, and stocks) covering the period from 1987 to 2012. The analysis is performed on both intra-day and daily data. We show that heterogeneity in correlations...

An enhanced option pricing framework that makes use of both continuous and discontinuous time paths based on a geometric Brownian motion and Poisson-driven jump processes respectively is performed in order to better fit with real-observed stock price paths while maintaining the analytical...

The first ever explicit formulation of the concept of the option's probability density functions has been introduced in our publications “Breakthrough in Understanding Derivatives and Option Based Hedging - Marginal and Joint Probability Density Functions of Vanilla Options - True...

• It is not widely emphasized in the literature that derivatives are complex random quantities which should, by custom, be characterized by their probability density functions. • It is understood that Black-Scholes style of derivatives pricing represents an expected value, i.e. the...

We introduce a new method to price American-style options on underlying investments governed by stochastic volatility (SV) models. The method does not require the volatility process to be observed. Instead, it exploits the fact that the optimal decision functions in the corresponding dynamic...