The Slope Of The Smile And The Comovement Of Volatility And Returns
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The Slope Of The Smile And The Comovement Of Volatility And Returns
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Author : Anthony Neuberger
language : en
Publisher:
Release Date : 2009
The Slope Of The Smile And The Comovement Of Volatility And Returns written by Anthony Neuberger and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2009 with categories.
The slope of the implied volatility smile reflects the correlation between volatility shocks and returns. By defining the slope as the difference between two implied variances, the relationship between the slope, and the correlation between volatility and returns can be derived formally in a way that is essentially model free. More specifically, the slope is the price of a swap contract where the floating leg is the covariation between returns on the underlying asset and changes in its volatility. The term structure of the slope carries information about the correlation between returns and future volatility. The results are analogous to the finding that the model free implied variance is equal to the expected realized variance under the pricing measure.
When Uncertainty Blows In The Orchard
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Author : Andrea Buraschi
language : en
Publisher:
Release Date : 2013
When Uncertainty Blows In The Orchard written by Andrea Buraschi and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2013 with categories.
We produce novel evidence for an equilibrium link between investors' disagreement, the market price of volatility and correlation, and the differential pricing of index and individual equity options. We show that belief disagreement is positively related to (i) the wedge between index and individual volatility risk premia, (ii) the different slope of the smile of index and individual options and (iii) the correlation risk premium. Priced disagreement risk also explains returns of option volatility and correlation trading strategies in a way that is robust to the inclusion of other risk factors and different market conditions.
Smile In Motion
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Author : Martin Wallmeier
language : en
Publisher:
Release Date : 2012
Smile In Motion written by Martin Wallmeier and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2012 with categories.
The Equity Volatility Smile And Default Risk
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Author :
language : en
Publisher:
Release Date : 2001
The Equity Volatility Smile And Default Risk written by and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2001 with categories.
According to the theoretical prediction, increasing default risk leads to an increasing steepness of the monotonically downward sloping stock option smile. However, extant empirical evidence of this prediction is extremely rare and limited to the slope of the smile at the ATM strike level. The empirical analysis of 23 DAX companies during a 3 year period showed the following: The effect of increasing default risk on the smile can be decomposed into a default-risk-only effect on the one hand and a volatility-only effect on the other. The default-risk-only effect is the impact of rising default risk on the smile if the level of equity volatility is kept constant, while the volatility-only effect designates the impact of increasing equity volatility on the smile, if the level of default risk is kept unchanged. The default-risk-only effect leads to increasing steepness of both wings of the U-shaped smile, whereas the volatility-only effect entails a flattening and right-translation of the smile. Both effects together finally imply a flattening and right-translation of the smile.
The Volatility Smile
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Author : Emanuel Derman
language : en
Publisher: John Wiley & Sons
Release Date : 2016-08-15
The Volatility Smile written by Emanuel Derman and has been published by John Wiley & Sons this book supported file pdf, txt, epub, kindle and other format this book has been release on 2016-08-15 with Business & Economics categories.
The Volatility Smile The Black-Scholes-Merton option model was the greatest innovation of 20th century finance, and remains the most widely applied theory in all of finance. Despite this success, the model is fundamentally at odds with the observed behavior of option markets: a graph of implied volatilities against strike will typically display a curve or skew, which practitioners refer to as the smile, and which the model cannot explain. Option valuation is not a solved problem, and the past forty years have witnessed an abundance of new models that try to reconcile theory with markets. The Volatility Smile presents a unified treatment of the Black-Scholes-Merton model and the more advanced models that have replaced it. It is also a book about the principles of financial valuation and how to apply them. Celebrated author and quant Emanuel Derman and Michael B. Miller explain not just the mathematics but the ideas behind the models. By examining the foundations, the implementation, and the pros and cons of various models, and by carefully exploring their derivations and their assumptions, readers will learn not only how to handle the volatility smile but how to evaluate and build their own financial models. Topics covered include: The principles of valuation Static and dynamic replication The Black-Scholes-Merton model Hedging strategies Transaction costs The behavior of the volatility smile Implied distributions Local volatility models Stochastic volatility models Jump-diffusion models The first half of the book, Chapters 1 through 13, can serve as a standalone textbook for a course on option valuation and the Black-Scholes-Merton model, presenting the principles of financial modeling, several derivations of the model, and a detailed discussion of how it is used in practice. The second half focuses on the behavior of the volatility smile, and, in conjunction with the first half, can be used for as the basis for a more advanced course.
Dynamic Factor Models
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Author :
language : en
Publisher: Emerald Group Publishing
Release Date : 2016-01-08
Dynamic Factor Models written by and has been published by Emerald Group Publishing this book supported file pdf, txt, epub, kindle and other format this book has been release on 2016-01-08 with Business & Economics categories.
This volume explores dynamic factor model specification, asymptotic and finite-sample behavior of parameter estimators, identification, frequentist and Bayesian estimation of the corresponding state space models, and applications.
Methods Of Mathematical Finance
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Author : Ioannis Karatzas
language : en
Publisher: Springer Science & Business Media
Release Date : 1998-08-13
Methods Of Mathematical Finance written by Ioannis Karatzas and has been published by Springer Science & Business Media this book supported file pdf, txt, epub, kindle and other format this book has been release on 1998-08-13 with Business & Economics categories.
This monograph is a sequel to Brownian Motion and Stochastic Calculus by the same authors. Within the context of Brownian-motion- driven asset prices, it develops contingent claim pricing and optimal consumption/investment in both complete and incomplete markets. The latter topic is extended to a study of equilibrium, providing conditions for the existence and uniqueness of market prices which support trading by several heterogeneous agents. Although much of the incomplete-market material is available in research papers, these topics are treated for the first time in a unified manner. The book contains an extensive set of references and notes describing the field, including topics not treated in the text. This monograph should be of interest to researchers wishing to see advanced mathematics applied to finance. The material on optimal consumption and investment, leading to equilibrium, is addressed to the theoretical finance community. The chapters on contingent claim valuation present techniques of practical importance, especially for pricing exotic options. Also available by Ioannis Karatzas and Steven E. Shreve, Brownian Motion and Stochastic Calculus, Second Edition, Springer-Verlag New York, Inc., 1991, 470 pp., ISBN 0-387- 97655-8.
Handbook Of Financial Econometrics Mathematics Statistics And Machine Learning In 4 Volumes
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Author : Cheng Few Lee
language : en
Publisher: World Scientific
Release Date : 2020-07-30
Handbook Of Financial Econometrics Mathematics Statistics And Machine Learning In 4 Volumes written by Cheng Few Lee and has been published by World Scientific this book supported file pdf, txt, epub, kindle and other format this book has been release on 2020-07-30 with Business & Economics categories.
This four-volume handbook covers important concepts and tools used in the fields of financial econometrics, mathematics, statistics, and machine learning. Econometric methods have been applied in asset pricing, corporate finance, international finance, options and futures, risk management, and in stress testing for financial institutions. This handbook discusses a variety of econometric methods, including single equation multiple regression, simultaneous equation regression, and panel data analysis, among others. It also covers statistical distributions, such as the binomial and log normal distributions, in light of their applications to portfolio theory and asset management in addition to their use in research regarding options and futures contracts.In both theory and methodology, we need to rely upon mathematics, which includes linear algebra, geometry, differential equations, Stochastic differential equation (Ito calculus), optimization, constrained optimization, and others. These forms of mathematics have been used to derive capital market line, security market line (capital asset pricing model), option pricing model, portfolio analysis, and others.In recent times, an increased importance has been given to computer technology in financial research. Different computer languages and programming techniques are important tools for empirical research in finance. Hence, simulation, machine learning, big data, and financial payments are explored in this handbook.Led by Distinguished Professor Cheng Few Lee from Rutgers University, this multi-volume work integrates theoretical, methodological, and practical issues based on his years of academic and industry experience.
Commodity Price Dynamics
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Author : Craig Pirrong
language : en
Publisher: Cambridge University Press
Release Date : 2011-10-31
Commodity Price Dynamics written by Craig Pirrong and has been published by Cambridge University Press this book supported file pdf, txt, epub, kindle and other format this book has been release on 2011-10-31 with Business & Economics categories.
Commodities have become an important component of many investors' portfolios and the focus of much political controversy over the past decade. This book utilizes structural models to provide a better understanding of how commodities' prices behave and what drives them. It exploits differences across commodities and examines a variety of predictions of the models to identify where they work and where they fail. The findings of the analysis are useful to scholars, traders and policy makers who want to better understand often puzzling - and extreme - movements in the prices of commodities from aluminium to oil to soybeans to zinc.
Correlation Risk Modeling And Management
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Author : Gunter Meissner
language : en
Publisher: John Wiley & Sons
Release Date : 2013-12-19
Correlation Risk Modeling And Management written by Gunter Meissner and has been published by John Wiley & Sons this book supported file pdf, txt, epub, kindle and other format this book has been release on 2013-12-19 with Business & Economics categories.
A thorough guide to correlation risk and its growing importance in global financial markets Ideal for anyone studying for CFA, PRMIA, CAIA, or other certifications, Correlation Risk Modeling and Management is the first rigorous guide to the topic of correlation risk. A relatively overlooked type of risk until it caused major unexpected losses during the financial crisis of 2007 through 2009, correlation risk has become a major focus of the risk management departments in major financial institutions, particularly since Basel III specifically addressed correlation risk with new regulations. This offers a rigorous explanation of the topic, revealing new and updated approaches to modelling and risk managing correlation risk. Offers comprehensive coverage of a topic of increasing importance in the financial world Includes the Basel III correlation framework Features interactive models in Excel/VBA, an accompanying website with further materials, and problems and questions at the end of each chapter