Regulators charged with monitoring systemic risk need to focus on sentiment as well as narrowly defined measures of systemic risk. This chapter describes techniques for jointly monitoring the co-evolution of sentiment and systemic risk. To measure systemic risk, we use Marginal Expected...

The informational content of changing risk for dynmaic asset allocation is analyzed in order to investigate its importance in determining expected index returns. We consider a class of optimal dynamic strategies taking into account both changing risk and expected returns that vary accordingly to...

The dynamics of the physical probability of firms that undertake a stock swap merger is developed through a simple model. Using a sample of 1090 deals from 1992 to 2008, we show how movements in target stock prices are informative of the success or failure of a stock swap merger and how...

We propose a model able to estimate the risk of assets in balance from aggregate data by introducing a prudential measure called Filtered Historical Spectral Asset Measure (FH - SAM). Our measure combines a model based method to simulate the evolution of volatility with model free method of...

The quadratic form of the covariance-co-skewness model by Kraus and Litzenberger and arbitrage pricing theory are used for an empirical investigation of market equilibrium with skewed seecurity returns. Empirical tests similar to the ones in Black-Jensen-Scholes and Gibbons are discussed. The...

This paper provides simple analytic approximations for pricing exchange-traded American call and put options written on commodities and commodity futures contracts. These approximations are accurate and considerably more computationally efficient than finite- difference, binomial, or...

In the existing literature on barrier options, much effort has been exerted to ensure convergence through placing the barrier in close proximity to, or directly onto, the nodes of the tree lattice. In this paper we show that this may not be necessary to achieve accurate option price...

We propose a new method to compute option prices based on GARCH models. In an incomplete market framework, we allow for the volatility of asset return to differ from the volatility of the pricing process and obtain adequate pricing results. We investigate the pricing performance of this approach...