We develop an estimation method for the Diagonal Multivariate GARCH model. For a vector of size N unidimensional GARCH processes for the diagonal elements of the conditional covariance matrix, and N(N-1)/2 bivariate GARCH processes for the off-diagonal elements of the conditional covariance...

The goal of this paper is to estimate time-varying covariance matrices. Since the covariance matrix of financial returns is known to change through time and is an essential ingredient in risk measurement, portfolio selection, and tests of asset pricing models, this is a very important problem in...

The goal of this paper is to estimate time-varying covariance matrices. Since the covariance matrix of financial returns is known to change through time and is an essential ingredient in risk measurement, portfolio selection, and tests of asset pricing models, this is a very important problem in...

This paper offers a new approach for pricing options on assets with stochastic volatility. We start by taking as given the prices of a few simple, liquid European options. More specifically, we take as given the “surface†of Black-Scholes implied volatilities for European options with...

We develop an estimation method for the Diagonal Multivariate GARCH model. For a vector of size N unidimensional GARCH processes for the diagonal elements of the conditional covariance matrix, and N(N-1)/2 bivariate GARCH processes for the off-diagonal elements of the conditional covariance...

This paper offers a new approach for pricing options on assets with stochastic volatility. We start by constructing the quot;surfacequot; of Black-Scholes implied volatilities for (readily observable) liquid, European call options with varying strike prices and maturities. Then, we show that the...

Markowitz portfolio selection is a cornerstone in finance, both in academia and in the industry. Most academic studies either ignore transaction costs or account for them in a way that is both unrealistic and suboptimal by (i) assuming transaction costs to be constant across stocks and (ii)...