We consider a stochastic volatility model of the mean-reverting type to describe the evolution of a firm’s values … default probability. Our simulation results indicate that the stochastic volatility model tends to predict higher default … probabilities than the corresponding Merton model if a firm’s credit quality is not too low. Otherwise the stochastic volatility …

We consider a stochastic volatility model of the mean-reverting type to describe the evolution of a firm's values … default probability. Our simulation results indicate that the stochastic volatility model tends to predict higher default … probabilities than the corresponding Merton model if a firm's credit quality is not too low. Otherwise the stochastic volatility …

. Unlike in other models, the CVA is a function of the credit spread volatility and not only of its current level. For … market factors, its volatility and the quality of hedging. The wrong way risk is most significant for exposures highly … sensitive to the market volatility in a situation when credit spreads are at moderate levels but both the market factors and …

The extraordinary growth of short volatility strategies creates risks that may trigger the next serious market crash. A … low yield, low volatility environment has drawn various market participants into essentially similar short volatility … risks that they would pose if everyone unwinds simultaneously. Volatility selling investors essentially provide “shadow …

volatility, generating a negative volatility skew in option prices. Using a large sample of U.S. equity options, we provide …

Inspired by the theory of social imitation (Weidlich 1970) and its adaptation to financial markets by the Coherent …

, especially on the BS implied volatility. Implied binomial trees (IBT) models capture the variations of the implied volatility … known as "volatility smile". They provide a discrete approximation to the continuous risk neutral process for the underlying … Barle and Cakici (BC). After the formation of IBT we can estimate the implied local volatility and the state price density …

conditioning on skewness increases the predictive power of the volatility spread and that coefficient estimates accord with theory … of the volatility spread to skewness. We measure skewness from option prices and test these predictions. We find that … the term structure of option-implied volatility, skewness and kurtosis and find that time-dependence in returns has a …