In this paper we present an extended model for the estimation of effective bid-ask spread that improves the existing models and offers a new direction of generalisation. The quoted bid-ask spread represents the prices available at a given time for transactions only up to some relatively small...

In this paper, we propose a parametric model of implied variance which is a natural generalization of the SVI model. The model improves the SVI by allowing more flexibly the negative curvature in the tails which is justified both theoretically and empirically. The fitting of the model, comparing...

Unknown model parameters, like expected returns, cannot be accurately estimated from short samples. Respective estimation error most likely leads to the portfolio, inconsistent with its target risk/return profile. We investigate the ways of reducing the impact of estimation error on portfolio...

This paper develops a new reduced form two-factor model for commodity spot prices and futures valuation. This models extends Schwartz's (1997) two-factor model by adding two new features. First we replace the Ornstein-Uhlenbeck process for the convenience yield by a Cox-Ingersoll-Ross (CIR)...

Motivated by the implied stochastic volatility literature (Britten-Jones and Neuberger (1998), Derman and Kani (1997), Ledoit and Santa-Clara (1998)) this paper proposes a new and general method for constructing smile-consistent stochastic volatility models. The method is developed by...