Stochastic Volatility, Jumps and Variance Risk Premia PDF Download
Are you looking for read ebook online? Search for your book and save it on your Kindle device, PC, phones or tablets. Download Stochastic Volatility, Jumps and Variance Risk Premia PDF full book. Access full book title Stochastic Volatility, Jumps and Variance Risk Premia by Worapree Maneesoonthorn. Download full books in PDF and EPUB format.
Author: Worapree Maneesoonthorn Publisher: ISBN: Category : Languages : en Pages : 604
Book Description
Planning for future movements in asset prices and understanding the variation in the return on assets are key to the successful management of investment portfolios. This thesis investigates issues related to modelling both asset return volatility and the large movements in asset prices that may be induced by the events in the general economy, as random processes, with the implications for risk compensation and the prediction thereof being a particular focus. Exploiting modern numerical Bayesian tools, a state space framework is used to conduct all inference, with the thesis making three novel contributions to the empirical finance literature. First, observable measures of physical and option-implied volatility on the S&P 500 market index are combined to conduct inference about the latent spot market volatility, with a dynamic structure specified for the variance risk premia factored into option prices. The pooling of dual sources of information, along with the use of a dynamic model for the risk premia, produces insights into the workings of the U.S. markets, plus yields accurate forecasts of several key variables, including over the recent period of stock market turmoil. Second, a new continuous time asset pricing model allowing for dynamics in, and interactions between, the occurrences of price and volatility jumps is proposed. Various hypotheses about the nature of extreme movements in both S&P 500 returns and the volatility of the index are analyzed, within a state space model in which the usual returns measure is supplemented by direct measures of physical volatility and price jumps. The empirical results emphasize the importance of modelling both types of jumps, with the link between the intensity of volatility jumps and certain key extreme events in the economy being drawn. Finally, an empirical exploration of an alternative framework for the statistical evaluation of price jumps is conducted, with the aim of comparing the resultant measures of return variance and jumps with those induced by more conventional methods. The empirical analysis sheds light on the potential impact of the method of measurement construction on inference about the asset pricing process, and ultimately any financial decisions based on such inference.
Author: Worapree Maneesoonthorn Publisher: ISBN: Category : Languages : en Pages : 604
Book Description
Planning for future movements in asset prices and understanding the variation in the return on assets are key to the successful management of investment portfolios. This thesis investigates issues related to modelling both asset return volatility and the large movements in asset prices that may be induced by the events in the general economy, as random processes, with the implications for risk compensation and the prediction thereof being a particular focus. Exploiting modern numerical Bayesian tools, a state space framework is used to conduct all inference, with the thesis making three novel contributions to the empirical finance literature. First, observable measures of physical and option-implied volatility on the S&P 500 market index are combined to conduct inference about the latent spot market volatility, with a dynamic structure specified for the variance risk premia factored into option prices. The pooling of dual sources of information, along with the use of a dynamic model for the risk premia, produces insights into the workings of the U.S. markets, plus yields accurate forecasts of several key variables, including over the recent period of stock market turmoil. Second, a new continuous time asset pricing model allowing for dynamics in, and interactions between, the occurrences of price and volatility jumps is proposed. Various hypotheses about the nature of extreme movements in both S&P 500 returns and the volatility of the index are analyzed, within a state space model in which the usual returns measure is supplemented by direct measures of physical volatility and price jumps. The empirical results emphasize the importance of modelling both types of jumps, with the link between the intensity of volatility jumps and certain key extreme events in the economy being drawn. Finally, an empirical exploration of an alternative framework for the statistical evaluation of price jumps is conducted, with the aim of comparing the resultant measures of return variance and jumps with those induced by more conventional methods. The empirical analysis sheds light on the potential impact of the method of measurement construction on inference about the asset pricing process, and ultimately any financial decisions based on such inference.
Author: Ke Chen (Economist) Publisher: ISBN: Category : Languages : en Pages :
Book Description
This thesis studies a few different finance topics on the application and modelling of jump and stochastic volatility process. First, the thesis proposed a non-parametric method to estimate the impact of jump dependence, which is important for portfolio selection problem. Comparing with existing literature, the new approach requires much less restricted assumption on the jump process, and estimation results suggest that the economical significance of jumps is largely mis-estimated in portfolio optimization problem. Second, this thesis investigates the time varying variance risk premium, in a framework of stochastic volatility with stochastic jump intensity. The proposed model considers jump intensity as an extra factor which is driven by realized jumps, in addition to a stochastic volatility model. The results provide strong evidence of multiple factors in the market and show how they drive the variance risk premium. Thirdly, the thesis uses the proposed models to price options on equity and VIX consistently. Based on calibrated model parameters, the thesis shows how to calculate the unconditional correlation of VIX future between different maturities.
Author: Nicole Branger Publisher: ISBN: Category : Languages : en Pages : 40
Book Description
The paper analyzes expected option returns in models with stochastic volatility and jumps. A comparison with empirically documented returns shows that the ability of the model to explain these returns can differ significantly depending on the holding period and depending on whether we consider call or put options. Furthermore, we show that the size of the jump risk premium and its decomposition into a premium for jump intensity risk, jump size risk, and jump variance risk has a significant impact on expected option returns. In particular, expected returns on OTM calls can even become negative if e.g. jump variance risk is priced.
Author: Karl Larsson Publisher: ISBN: Category : Languages : en Pages : 34
Book Description
This paper investigates model dynamics and risk premia in the short term market for crude oil futures. Stochastic volatility models, with and without jumps, are estimated using data on both futures and option prices. As an economic application we apply the estimated models to the pricing of crude oil variance swaps and an evaluation of the associated variance risk premium. The empirical results point to a positive return risk premium attached to diffusive stochastic volatility while there is not strong evidence of jump risk being priced in the market. Negative volatility and variance risk premia stand out as a robust and significant feature of the data. Jumps play a minor role for representing data and the jump risk component in both variance swaps and variance risk premia is small. Finally, a non-affine model that allows for level dependent volatility of volatility is found to have the best fit to data.
Author: John Matovu Publisher: International Monetary Fund ISBN: Category : Business & Economics Languages : en Pages : 32
Book Description
There is strong evidence that interest rates and bond yield movements exhibit both stochastic volatility and unanticipated jumps. The presence of frequent jumps makes it natural to ask whether there is a premium for jump risk embedded in observed bond yields. This paper identifies a class of jump-diffusion models that are successful in approximating the term structure of interest rates of emerging markets. The parameters of the term structure of interest rates are reconciled with the associated bond yields by estimating the volatility and jump risk premia in highly volatile markets. Using the simulated method of moments (SMM), results suggest that all variants of models which do not take into account stochastic volatility and unanticipated jumps cannot generate the non-normalities consistent with the observed interest rates. Jumps occur (8,10) times a year in Argentina and Brazil, respectively. The size and variance of these jumps is also of statistical significance.
Author: Robert A. Meyers Publisher: Springer Science & Business Media ISBN: 1441977007 Category : Business & Economics Languages : en Pages : 919
Book Description
Finance, Econometrics and System Dynamics presents an overview of the concepts and tools for analyzing complex systems in a wide range of fields. The text integrates complexity with deterministic equations and concepts from real world examples, and appeals to a broad audience.
Author: Federico M. Bandi Publisher: ISBN: Category : Languages : en Pages : 75
Book Description
The dependence between the magnitudes of discontinuous changes in asset prices and contemporaneous discontinuous changes in volatility (co-jumps) is a fundamental aspect of the price process contributing, among other effects, to skewness in the return distribution. Yet, its nature has been reported by many as being - in terms of sign, magnitude, and statistical significance - largely elusive. Using a novel identification strategy for stochastic volatility modelling in continuous time relying on trade-level information for spot variance estimation, as well as infinitesimal cross-moments, this paper documents that a sizeable proportion of discontinuous changes in asset prices are associated with strongly anti-correlated, contemporaneous changes in volatility. Not only are the price jump sizes strongly negatively correlated with the volatility jump sizes, but the absolute values of their (negative) mean and dispersion appear to increase with the volatility level, an additional effect which should lead to care in the management of joint directional and volatility jump risk. Using a possibly non-monotonic pricing kernel, we illustrate the equilibrium impact of price and volatility co-jumps on both return and variance risk premia.
Author: Athanasios Bolmatis Publisher: ISBN: Category : Languages : en Pages : 49
Book Description
We study the volatility risk premia for the G9 currencies and find that they are negative, significant, both statistically and economically, and time varying. Our analysis indicates that the currency volatility risk premia covary with other prominent risk premia that have attracted attention in the asset pricing literature, namely the FX carry and the equity risk premium as well as the variance risk premia in other asset classes. However, once the equity variance risk premium is entered in a multiple regression, the statistical and economic significance of the former two is substantially impaired. We interpret these findings as evidence that volatility acts as an aggregate state variable that captures the evolution of the investor's opportunity set rather than just another statistical risk factor. Finally, we find no conclusive evidence that jump risk is priced within the volatility risk premia supporting the view that stochastic volatility and jumps have different effects and are separately priced.
Author: Worapree Maneesoonthorn
Author: Worapree Maneesoonthorn
Author: Ke Chen (Economist)
Author: Ke Chen (Economist)
Author: Nicole Branger
Author: Karl Larsson
Author: John Matovu
Author: Robert A. Meyers
Author: Federico M. Bandi
Author: Ke Chen (Economist)
Author: Athanasios Bolmatis