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Extremes of random volatility models
, 2008
"... Extreme value theory for financial models mostly concerns the martingale part of the logarithm of a price process, since random volatility determines the extreme risk in price fluctuations. The increments (Yn)n∈Z and (Yt)t∈R of length 1 of this martingale part often have the structure ..."
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Cited by 1 (0 self)
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Extreme value theory for financial models mostly concerns the martingale part of the logarithm of a price process, since random volatility determines the extreme risk in price fluctuations. The increments (Yn)n∈Z and (Yt)t∈R of length 1 of this martingale part often have the structure
Stock Market Prices Do Not Follow Random Walks: Evidence from a Simple Specification Test
 REVIEW OF FINANCIAL STUDIES
, 1988
"... In this article we test the random walk hypothesis for weekly stock market returns by comparing variance estimators derived from data sampled at different frequencies. The random walk model is strongly rejected for the entire sample period (19621985) and for all subperiod for a variety of aggrega ..."
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Cited by 517 (17 self)
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of aggregate returns indexes and sizesorted portofolios. Although the rejections are due largely to the behavior of small stocks, they cannot be attributed completely to the effects of infrequent trading or timevarying volatilities. Moreover, the rejection of the random walk for weekly returns does
Meanvariance hedging with random volatility jumps
, 1999
"... Abstract. We introduce a general framework for stochastic volatility models, with the risky asset dynamics given by: dXt(ω, η) = µt(η)Xt(ω, η)dt+ σt(η)Xt(ω, η)dWt(ω) where (ω, η) ∈ (Ω×H,FΩ ⊗FH, PΩ ⊗ PH). In particular, we allow for random discontinuities in the volatility σ and the drift µ. Firs ..."
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Cited by 4 (1 self)
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Abstract. We introduce a general framework for stochastic volatility models, with the risky asset dynamics given by: dXt(ω, η) = µt(η)Xt(ω, η)dt+ σt(η)Xt(ω, η)dWt(ω) where (ω, η) ∈ (Ω×H,FΩ ⊗FH, PΩ ⊗ PH). In particular, we allow for random discontinuities in the volatility σ and the drift µ
Term Premia and Interest Rate Forecasts in Affine Models
, 2001
"... I find that the standard class of a#ne models produces poor forecasts of future changes in Treasury yields. Better forecasts are generated by assuming that yields follow random walks. The failure of these models is driven by one of their key features: The compensation that investors receive for faci ..."
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Cited by 454 (13 self)
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I find that the standard class of a#ne models produces poor forecasts of future changes in Treasury yields. Better forecasts are generated by assuming that yields follow random walks. The failure of these models is driven by one of their key features: The compensation that investors receive
The Variance Gamma Process and Option Pricing.
 European Finance Review
, 1998
"... : A three parameter stochastic process, termed the variance gamma process, that generalizes Brownian motion is developed as a model for the dynamics of log stock prices. The process is obtained by evaluating Brownian motion with drift at a random time given by a gamma process. The two additional par ..."
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Cited by 365 (34 self)
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: A three parameter stochastic process, termed the variance gamma process, that generalizes Brownian motion is developed as a model for the dynamics of log stock prices. The process is obtained by evaluating Brownian motion with drift at a random time given by a gamma process. The two additional
Approximate Series and Claim Replicating Problems for a Market With Time Varying Random Volatility
"... The paper investigates a contingent claim replicating problem for a diffusion market model. It is proposed an approach which does not call to solve the backward parabolic equation, unlike for the classical method, and this approach is applied for a case when the volatility coefficient is random and ..."
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The paper investigates a contingent claim replicating problem for a diffusion market model. It is proposed an approach which does not call to solve the backward parabolic equation, unlike for the classical method, and this approach is applied for a case when the volatility coefficient is random
Testing ContinuousTime Models of the Spot Interest Rate
 Review of Financial Studies
, 1996
"... Different continuoustime models for interest rates coexist in the literature. We test parametric models by comparing their implied parametric density to the same density estimated nonparametrically. We do not replace the continuoustime model by discrete approximations, even though the data are rec ..."
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Cited by 310 (9 self)
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are recorded at discrete intervals. The principal source of rejection of existing models is the strong nonlinearity of the drift. Around its mean, where the drift is essentially zero, the spot rate behaves like a random walk. The drift then meanreverts strongly when far away from the mean. The volatility
Stock Market Overreaction to Bad News in Good Times: A Rational Expectations Equilibrium Model
, 1999
"... This paper presents a dynamic, rational expectations equilibrium model of asset prices where the drift of fundamentals (dividends) shifts between two unobservable states at random times. I show that in equilibrium, investors' willingness to hedge against changes in their own "uncertainty&q ..."
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Cited by 229 (9 self)
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This paper presents a dynamic, rational expectations equilibrium model of asset prices where the drift of fundamentals (dividends) shifts between two unobservable states at random times. I show that in equilibrium, investors' willingness to hedge against changes in their own "
unknown title
, 2008
"... Pricing rule based on nonarbitrage arguments for random volatility and volatility smile ..."
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Pricing rule based on nonarbitrage arguments for random volatility and volatility smile
Optimal fiscal and monetary policy under sticky prices.
 Journal of Economic Theory
, 2004
"... Abstract This paper studies optimal fiscal and monetary policy under sticky product prices. The theoretical framework is a stochastic production economy without capital. The government finances an exogenous stream of purchases by levying distortionary income taxes, printing money, and issuing onep ..."
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Cited by 226 (13 self)
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period nominally riskfree bonds. The main findings of the paper are: First, for a miniscule degree of price stickiness (i.e., many times below available empirical estimates) the optimal volatility of inflation is near zero. This result stands in stark contrast with the high volatility of inflation implied
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