To implement continuous time option pricing models in which ARCH models can be used as direct or indirect approximators of stochastic volatility, we construct continuous time economies exhibiting equilibrium dynamics to which most asymmetric ARCH models converge in distribution as the sample...

We compare the state-price density that is implied by the cross-section of options prices with the corresponding density of the underlying asset price that is derived from an equilibrium model with Markovian stochastic volatility. If the data-generating process is of the stochastic volatility...

This paper develops two conditionally heteroscedastic models which allow an asymmetric reaction of the conditional volatility to the arrival of news. Such a reaction is induced by both the sign of past shocks and the size of past unexpected volatility. The proposed models are shown to converge...

This paper analyzes the impact of news on several Italian financial variables, paying particular attention to the effect on the conditional volatility of these variables. The analysis spans a period of great financial and political turbulence in Italy, including the rapid succession of three...

The U.S. business cycle typically leads the European cycle by a few quarters and this can be used to forecast euro area GDP. We investigate whether financial variables carry additional information. We use vector autoregressions (VARs) which include the U.S. and the euro area GDPs as a minimal...

Some of the sharpest movements in the major swap markets take place during days of US economic data releases. These yield movements induce spikes in volatilities during those days. Swaption prices adjust to reflect the spikes=the volatilities implied by these prices tend to fall once the...

Interest rate volatility, as implied by swaptions prices, rose in all major economic areas between 2001 and early 2004. The increase was particularly sharp for US rates and was more sizeable for short-term rates and swaptions with short expiration. Since the spring of 2004, US dollar...