In this paper, we review the most common specifications of discrete-time stochastic volatility (SV) models and illustrate the major principles of corresponding Markov Chain Monte Carlo (MCMC) based statistical inference. We provide a hands-on ap proach which is easily implemented in empirical...

In this paper, we review the most common specifications of discrete-time stochasticvolatility (SV) models and illustrate the major principles of corresponding MarkovChain Monte Carlo (MCMC) based statistical inference. We provide a hands-on approachwhich is easily implemented in empirical...

In this paper, we review the most common specifications of discrete-time stochastic volatility (SV) models and illustrate the major principles of corresponding Markov Chain Monte Carlo (MCMC) based statistical inference. We provide a hands-on ap proach which is easily implemented in empirical...

For many countries located around the equatorial region, climate phenomenon such as El Niño southern oscillation or ENSO has enormous impact on their economies. In the case of countries with a high degree of dependency on water resources for energy generation, the impact of ENSO has been...

Option pricing should be based on a realistic process for the underlying and on the construction of a risk-neutral measure as induced by a no-arbitrage replication strategy. This paper presents a realistic and complete, "first principles,'' computation of option prices. The underlying is modeled...

Can-do options are bespoke option structures listed on Safex and Yield-X. The JSE is the first exchange in the world to list, trade and clear exotic options. The first exotic was listed on 8 January 2007 with the onset of the financial crisis that played out during 2008. The option was on the...

A model of building and using synthetic straddles has been developed; it enables an investor to significantly reduce its individual equity risk related to its own basic assets, i.e. shares. The Black-Scholes model, which is regarded as a classical model, cannot be used for this purpose for the...

Lundblad (2007, JFE) shows that the risk-return tradeoff is unequivocally positive with a two-century history of equity market data. A further examination of the relation with the UK monthly stock returns from 1836 to 2010 produces rather weak risk-return relation. I show that the risk-return...

Pushing models to extremes can expose output biases that stem from underlying assumptions. In the case of industry standard option valuation models, long term, high volatility securities provide a stress test vehicle. For instance, in evaluating a stock with 60% volatility, industry standard...