We examine the pricing of volatility risk in the cross-section of equity Real Estate Investment Trust (REIT) stock returns over the 1996 – 2010 period. We consider both aggregate (systematic) volatility and firm-specific (idiosyncratic) volatility. In contrast to the negative and significant...

A time homogeneous, purely discontinuous, parsimonous Markov martingale model is proposed for the risk neutral dynamics of equity forward prices. Transition probabilities are in the variance gamma class with spot dependent parameters. Markov chain approximations give access to option prices. The...

Statistical theory has been relatively absent in the exercise of estimating parameters of an option pricing model from cross-sectional data at a fixed point of calendar time. The cross-sectional data typically consists of prices for options at various strikes and maturities at market close. The...

We derive a closed-form expansion of option prices in terms of Black-Scholes prices and higher-order Greeks. We show how the true price of an option less its Black-Scholes price is given by a series of premiums on higher-order risks that are not priced under the Black-Scholes model assumptions....

A growing body of literature confirms the significance of the commodity futures basis factor: It has a significantly positive premium and it explains the cross-section of commodity-futures excess returns. We extend the literature by documenting predictive relation between this factor and the...

We propose a non-equidistant Q rate matrix setting formula such that a well-defined continuous time Markov chain can lead to excellent approximations to jump-diffusions with affine or non-affine functional specifications. This approach also accommodates state-dependent jump intensity and jump...

This paper analyses the intraday co-movements between returns on several commodity markets and on the stock market in the United States over the 1997-2011 period. By exploiting a new high frequency database, we compute various rolling correlations at (i) 1-hour, (ii) 5-minute, (iii) 10-second,...

In this paper, we propose an efficient Monte Carlo implementation of a non-linear FBSDE as a system of interacting particles inspired by the idea of the branching diffusion method of McKean. It will be particularly useful to investigate large and complex systems, and hence it is a good...

We study the intra-day impact of algorithmic trading on the futures market to increase our understanding of algorithmic trading and its role in the price formation process. First, we find that algorithmic trading provides liquidity when the spread is wide and that algorithms enter the market at...

We consider evaluation methods for payoffs with an inherent financial risk as encountered for instance for portfolios held by pension funds and insurance companies. Pricing such payoffs in a way consistent to market prices typically involves combining actuarial techniques with methods from...