We consider two multivariate long-memory ARCH models, which extend the univariate long-memory ARCH models, we first consider a long-memory extension of the restricted constant conditional correlations (CCC) model introduced by Bollerslev (1990), and we propose a new unrestricted conditional...

The basic theory of price formation tells us how the price of a particular asset will change based on the adjustment to its supply and demand. However, values of assets are also determined by other business fundamentals, company's and world events, human psychology, and investors' belief about...

This paper studies the question of the economic scale of financial institutions. We show that banks actively smooth book equity by adjusting payouts to achieve a desired trajectory of book equity. The countercyclical nature of net payouts of financial institutions leads to procyclical book...

The aim of this paper is to compare statistical properties of stock price indices in periods of booms with those in periods of stagnations. We use the daily data of the four stock price indices in the major stock markets in the world: (i) the Nikkei 225 index (Nikkei 225) from January 4, 1975 to...

We investigate the effect of including variance derivatives as calibration and hedging instruments for pricing and hedging exotic structures. This is studied empirically using market data for SPX and VIX derivatives applied in a stochastic volatility jump diffusion model

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...

In this paper, we consider the measurement and pricing of distress risk.We present a model of corporate failure in which accounting and market-based measures forecast the likelihood of future financial distress. Our best model is more accurate than leading alternative measures of corporate...

The basic theory of price formation tells us how the price of a particular asset will change based on the adjustment to its supply and demand. However, values of assets are also determined by other business fundamentals, company's and world events, human psychology, and investors' belief about...

We introduce the beta stochastic volatility model and discuss empirical features of this model and its calibration. This model is appealing because, first, its parameters can be easily understood and calibrated and, second, it produces steeper forward skews, compared to traditional stochastic...

We conduct comprehensive analyses of the return characteristics of stock portfolios sorted by idiosyncratic volatility. We show that the relationship between idiosyncratic volatility and expected stock returns depends on whether the portfolio is composed of stocks with extreme performance and...