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39
2003), Forecasting volatility in financial markets: a review
 Journal of Economic Literature
"... task in financial markets, and it has held the attention of academics and practitioners over the last two decades. At the time of ..."
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Cited by 45 (0 self)
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task in financial markets, and it has held the attention of academics and practitioners over the last two decades. At the time of
The Generalized Hyperbolic Model: Financial Derivatives and Risk Measures
 MATHEMATICAL FINANCE – BACHELIER CONGRESS 2000, GEMAN
, 1998
"... Statistical analysis of data from the nancial markets shows that generalized hyperbolic (GH) distributions allow a more realistic description of asset returns than the classical normal distribution. GH distributions contain as subclasses hyperbolic as well as normal inverse Gaussian (NIG) distributi ..."
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Cited by 40 (5 self)
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Statistical analysis of data from the nancial markets shows that generalized hyperbolic (GH) distributions allow a more realistic description of asset returns than the classical normal distribution. GH distributions contain as subclasses hyperbolic as well as normal inverse Gaussian (NIG) distributions which have recently been proposed as basic ingredients to model price processes. GH distributions generate in a canonical way Levy processes, i.e. processes with stationary and independent increments. We introduce a model for price processes which is driven by generalized hyperbolic Levy motions. This GH model is a generalization of the hyperbolic model developed by Eberlein and Keller (1995). It is incomplete. We derive an option pricing formula for GH driven models using the Esscher transform as martingale measure and compare the prices with classical BlackScholes prices. The objective of this study is to examine the consistency of our model assumptions with the empirically obser...
The Risk Premium of Volatility Implicit in Currency Options
 Journal of Business and Economic Statistics
, 1998
"... This paper provides an empirical investigation of the risk neutral variance process and the market price of variance risk implied in the foreign currency options market. There are three principal contributions. First, the parameters of Heston's (1993) meanreverting square root stochastic volatili ..."
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Cited by 17 (1 self)
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This paper provides an empirical investigation of the risk neutral variance process and the market price of variance risk implied in the foreign currency options market. There are three principal contributions. First, the parameters of Heston's (1993) meanreverting square root stochastic volatility model are estimated using dollar/mark option prices from 1987 to 1992. Second, it is shown that these implied parameters can be combined with historical moments of the dollar/mark exchange rate to deduce an estimate of the market price of variance risk. These estimates are found to be nonzero, time varying, and of sufficient magnitude to imply that the compensation for variance risk is a significant component of the risk premia in the currency market. Finally, the outofsample test suggests that the historical variance and the Hull and White implied variance contain no additional information than those imbedded in the Heston implied variance. KEY WORDS: Market price of variance ...
Inference for volatilitytype objects and implications for hedging. Mykland
 Statistics and Its Interface
, 2008
"... The paper studies inference for volatility type objects and its implications for the hedging of options. It considers the nonparametric estimation of volatilities and instantaneous covariations between diffusion type processes. This is then linked to options trading, where we show that our estimates ..."
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Cited by 12 (3 self)
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The paper studies inference for volatility type objects and its implications for the hedging of options. It considers the nonparametric estimation of volatilities and instantaneous covariations between diffusion type processes. This is then linked to options trading, where we show that our estimates can be used to trade options without reference to the specific model. The new options “delta ” becomes an additive modification of the (implied volatility) BlackScholes delta. The modification, in our example, is both substantial and statistically significant. In the inference problem, explicit expressions are found for asymptotic error distributions, and it is explained why one does not in this case encounter a biasvariance tradeoff, but rather a variancevariance tradeoff. Observation times can be irregular. Some key words and phrases: volatility estimation, statistical uncertainty, small interval asymptotics, mixing convergence, option hedging
Forecasting future volatility from option prices, Working
, 2000
"... Weisbach are gratefully acknowledged. I bear full responsibility for all remaining errors. Forecasting Future Volatility from Option Prices Evidence exists that option prices produce biased forecasts of future volatility across a wide variety of options markets. This paper presents two main results. ..."
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Weisbach are gratefully acknowledged. I bear full responsibility for all remaining errors. Forecasting Future Volatility from Option Prices Evidence exists that option prices produce biased forecasts of future volatility across a wide variety of options markets. This paper presents two main results. First, approximately half of the forecasting bias in the S&P 500 index (SPX) options market is eliminated by constructing measures of realized volatility from five minute observations on SPX futures rather than from daily closing SPX levels. Second, much of the remaining forecasting bias is eliminated by employing an option pricing model that permits a nonzero market price of volatility risk. It is widely believed that option prices provide the best forecasts of the future volatility of the assets which underlie them. One reason for this belief is that option prices have the ability to impound all publicly available information – including all information contained in the history of past prices – about the future volatility of the underlying assets. A second related reason is that option pricing theory maintains that if an option prices fails to embody optimal forecasts of the future volatility of the underlying asset, a profitable trading strategy should be available whose implementation would push the option price to the level that reflects the best possible forecast of future volatility.
Financial options and statistical prediction intervals
 ANN. STATIST
, 2003
"... The paper shows how to convert statistical prediction sets into worst case hedging strategies for derivative securities. The prediction sets can, in particular, be ones for volatilities and correlations of the underlying securities, and for interest rates. This permits a transfer of statistical conc ..."
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The paper shows how to convert statistical prediction sets into worst case hedging strategies for derivative securities. The prediction sets can, in particular, be ones for volatilities and correlations of the underlying securities, and for interest rates. This permits a transfer of statistical conclusions into prices for options and similar financial instruments. A prime feature of our results is that one can construct the trading strategy as if the prediction set had a 100 % probability. If, in fact, the set has probability 1−α, the hedging strategy will work with at least the same probability. Different types of prediction regions are considered. The starting value A0 for the trading strategy corresponding to the 1 − α prediction region is a form of long term value at risk. At the same time, A0 is coherent.
The Forecast Quality of CBOE Implied Volatility Indexes. Working
, 2003
"... (CBOE) implied volatility indexes based on the Nasdaq 100 and Standard and Poor’s 100 and 500 stock indexes. We find that the forecast quality of CBOE implied volatilities for the S&P 100 (VXO) and S&P 500 (VIX) has improved since 1995. Implied volatilities for the Nasdaq 100 (VXN) appear to provide ..."
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(CBOE) implied volatility indexes based on the Nasdaq 100 and Standard and Poor’s 100 and 500 stock indexes. We find that the forecast quality of CBOE implied volatilities for the S&P 100 (VXO) and S&P 500 (VIX) has improved since 1995. Implied volatilities for the Nasdaq 100 (VXN) appear to provide even higher quality forecasts of future volatility. We further find that attenuation biases induced by the econometric problem of errors in variables appear to have largely disappeared from CBOE
366 “The informational content of overthecounter currency options” by
, 2004
"... In 2004 all publications will carry a motif taken from the €100 banknote. This paper can be downloaded without charge from ..."
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Cited by 8 (1 self)
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In 2004 all publications will carry a motif taken from the €100 banknote. This paper can be downloaded without charge from