In this paper we examine how the use of extreme value theory yields collateral requirements that are robust to extreme fluctuations in the market price of the asset used as collateral. These requirements are robust in the sense that they are able to adjust to reflect the tail behavior of the...

This paper develops a wavelet (spectral) approach to test the presence of a unit root in a stochastic process. The wavelet approach is appealing, since it is based directly on the different behavior of the spectra of a unit root process and that of a short memory stationary process. By...

Futures contracts on the New York Mercantile Exchange are the most liquid instruments for trading crude oil, which is the world’s most actively traded physical commodity. Under normal market conditions, traders can easily find counterparties for their trades, resulting in an efficient market...

Among analysts, technical trading rules are widely used for forecasting security returns. Recent literature provides evidence that these rules may provide positive profits after accounting for transaction costs. This would be contrary to the theory of the efficient market hypothesis which states...

Previous work on the preferred specification of hedonic price models usually recommended a Box-Cox model. In this paper we note that any parametric model involves implicit restrictions and they can be reduced by using a semiparametric model. We estimate a benchmark parametric model which passes...

This paper examines the impact of investor preferences on the optimal futures hedging strategy and associated hedging performance. Explicit risk aversion levels are often overlooked in hedging analysis. Applying a mean-variance hedging objective, the optimal futures hedging ratio is determined...

The Black-Scholes pricing errors are larger in the deeper out-of-the-money options relative to the near out-of-the-money options, and mispricing worsens with increased volatility. Our results indicate that the Black-Scholes model is not the proper pricing tool in high volatility situations...