We propose a class of new robust GMM tests for endogenous structural breaks. The tests are based on supremum and average statistics derived from robust GMM estimators with a bounded influence function. They imply a bounded linearized asymptotic bias of size and power under local model...

This paper proposes a two factor model for asset pricing. We formulate a model of asset returns that in addition to the traditional market return term includes also the square of the market return to account for risk originating from coskewness with the market portofolio. The quadratic term is...

In this paper we provide a convenient econometric framework for the analy-sis of nonlinear dependence in financial applications. We introduce models withconstrained nonparametric dependence, which specify the conditional distrib-ution or the copula in terms of a one-dimensional functional...

The aim of this paper is to extend the results of Jarrow, Yu (2001) onthe spread term structures of corporate bonds. We first consider differentcharacterisations of these term structures, when the available informationcorresponds to the default histories of the firms. The approach is then...

We propose a new method for pricing options based on GARCH models with filtered historical innovations. In an incomplete market framework we allow for different distributions of the historical and the pricing return dynamics enhancing the model flexibility to fit market option prices. An...

We propose a simple class of semiparametric multivariate GARCH models, allowing for asymmetric volatilities and time-varying conditional correlations. Estimates for time-varying conditional correlations are constructed by means of a convex combination of estimates for averaged correlations...

The American put is one of the oldest problems in mathematical finance. We review the development of the relevant literature over the last 40 years. Today the mainstream computational problems have been solved satisfactorily and the target of research is shifting towards the development of...

The first four conditional moments of the integrated variance implied by the GARCH diffusion process are derived analytically. Based on these moments and on a power series method an analytical approximation formula to price European options under the GARCH diffusion model is obtained. Monte...