A Practical Guide to Forecasting Financial Market Volatility

... its shape. The only exception is the case of a normal distribution or a lognormal distribution where the mean, µ, and the standard deviation, σ , are sufﬁcient statistics for the entire distribution, i.e. with µ and σ alone, one is able to reproduce the empirical distribution. This book is about vol ...

... its shape. The only exception is the case of a normal distribution or a lognormal distribution where the mean, µ, and the standard deviation, σ , are sufﬁcient statistics for the entire distribution, i.e. with µ and σ alone, one is able to reproduce the empirical distribution. This book is about vol ...

Timing the Treasury Bond Market

... year, the formula looks a bit different (due to compound interest) but the same principals apply. The formula above shows that the price, or the value, of the bond increases as the market interest rate decreases and vice versa. The logic behind this is that when, for instance, the interest rate is i ...

... year, the formula looks a bit different (due to compound interest) but the same principals apply. The formula above shows that the price, or the value, of the bond increases as the market interest rate decreases and vice versa. The logic behind this is that when, for instance, the interest rate is i ...

Forecasting Volatility in Financial Markets: A Review

... Poon and Granger: Forecasting Volatility in Financial Markets set aside reserve capital of at least three times that of value-at-risk (VaR), which is defined as the minimum expected loss with a 1-percent confidence level for a given time horizon (usually one or ten days). Sometimes, a 5-percent crit ...

... Poon and Granger: Forecasting Volatility in Financial Markets set aside reserve capital of at least three times that of value-at-risk (VaR), which is defined as the minimum expected loss with a 1-percent confidence level for a given time horizon (usually one or ten days). Sometimes, a 5-percent crit ...

Long-Short Commodity Investing - EDHEC

... Its first contribution is to study the performance and risk characteristics of long-only commodity portfolios and of long-short commodity strategies of the kind implemented by hedge fund managers with a focus on commodities, such as commodity trading advisors (CTAs) and commodity pool operators (CPO ...

... Its first contribution is to study the performance and risk characteristics of long-only commodity portfolios and of long-short commodity strategies of the kind implemented by hedge fund managers with a focus on commodities, such as commodity trading advisors (CTAs) and commodity pool operators (CPO ...

On the Design of Collateralized Debt Obligation

... whether securitizations have positive or negative effects on financial stability. In any case, many financial intermediaries use securitizations for their management of default risks. Given the importance of securitizations, there is amazingly little research on securitizations. A subset of these se ...

... whether securitizations have positive or negative effects on financial stability. In any case, many financial intermediaries use securitizations for their management of default risks. Given the importance of securitizations, there is amazingly little research on securitizations. A subset of these se ...

Competition, Reach for Yield, and Money Market Funds

... decreases with the cost of default, and the equilibrium default probability is strictly positive for (almost) all funds. Funds trade off expected costs of default for the expected gains of outperforming competitors by taking more risk. The fund with the highest default cost anticipates that in equil ...

... decreases with the cost of default, and the equilibrium default probability is strictly positive for (almost) all funds. Funds trade off expected costs of default for the expected gains of outperforming competitors by taking more risk. The fund with the highest default cost anticipates that in equil ...

The Impact of Skewness and Fat Tails on the Asset Allocation Decision

... of a portfolio with two instruments may be greater than the sum of the individual VaRs of those two instruments. In contrast, CVaR is subadditive. In the most basic case, if one assumes that returns are normally distributed, both VaR and CVaR can be estimated by using only the first two moments of t ...

... of a portfolio with two instruments may be greater than the sum of the individual VaRs of those two instruments. In contrast, CVaR is subadditive. In the most basic case, if one assumes that returns are normally distributed, both VaR and CVaR can be estimated by using only the first two moments of t ...

Volatility and Fixed Income Asset Class Comparison

... Derman (2003) draws some comparisons between bonds and options as well, noting the equivalence between the way the instruments are quoted—interest rates as parameters for bonds and volatilities as parameters for volatility instruments. The quoted interest rate must be plugged into a present value fo ...

... Derman (2003) draws some comparisons between bonds and options as well, noting the equivalence between the way the instruments are quoted—interest rates as parameters for bonds and volatilities as parameters for volatility instruments. The quoted interest rate must be plugged into a present value fo ...

NBER WORKING PAPER SERIES Jesús Fernández-Villaverde

... This paper shows how changes in the volatility of the real interest rate at which emerging economies borrow have a substantial e¤ect on real variables like output, consumption, investment, and hours worked. These e¤ects appear even when the level of the real interest rate itself remains constant. We ...

... This paper shows how changes in the volatility of the real interest rate at which emerging economies borrow have a substantial e¤ect on real variables like output, consumption, investment, and hours worked. These e¤ects appear even when the level of the real interest rate itself remains constant. We ...

On Credit Risk Modeling and Management

... proportional to p so in this case stdev (CL) increases faster than E (CL) with p. If we think of stdev (CL) to represent a measure of unexpected losses, then we can say that as credit quality deteriorates (i.e. higher default rates) then unexpected losses increase much faster than the expected losse ...

... proportional to p so in this case stdev (CL) increases faster than E (CL) with p. If we think of stdev (CL) to represent a measure of unexpected losses, then we can say that as credit quality deteriorates (i.e. higher default rates) then unexpected losses increase much faster than the expected losse ...

Explaining Credit Default Swap Spreads with Equity Volatility and

... suggests that realized variance measures from high frequency data provide a more accurate measure of short-term volatility (Andersen et al., 2001; Barndorff-Nielsen and Shephard, 2002; Meddahi, 2002). Furthermore, the continuous and jump contributions can be separated by comparing the difference bet ...

... suggests that realized variance measures from high frequency data provide a more accurate measure of short-term volatility (Andersen et al., 2001; Barndorff-Nielsen and Shephard, 2002; Meddahi, 2002). Furthermore, the continuous and jump contributions can be separated by comparing the difference bet ...

Analyzing Yield, Duration and Convexity of Mortgage Loans under

... conditional probabilities of prepayment and default are then represented as Pt P = λtP dt and Pt D = λtD dt , respectively. We can obtain the mortgage pricing formula as follows: ...

... conditional probabilities of prepayment and default are then represented as Pt P = λtP dt and Pt D = λtD dt , respectively. We can obtain the mortgage pricing formula as follows: ...

Joint Dynamics of Bond and Stock Returns - Wisconsin-School

... these by endogenizing the size of “trees” and modeling technologies with different amounts of cash-flow risk. The latter feature leads to an endogenous time-varying quantity of risk in the economy, which is essential for producing positive bond risk premia and a positive correlation of bond and stoc ...

... these by endogenizing the size of “trees” and modeling technologies with different amounts of cash-flow risk. The latter feature leads to an endogenous time-varying quantity of risk in the economy, which is essential for producing positive bond risk premia and a positive correlation of bond and stoc ...

When uncertainty blows in the orchard comovement and equilibrium

... pessimist in bad states is larger. Third, the model provides an economic rationale for the existence of an endogenous correlation risk premium, which drives the spread between the index and the single-stock volatility risk premia, due to the (endogenous) stochastic stock return correlation generated ...

... pessimist in bad states is larger. Third, the model provides an economic rationale for the existence of an endogenous correlation risk premium, which drives the spread between the index and the single-stock volatility risk premia, due to the (endogenous) stochastic stock return correlation generated ...

calcul stochastique en finance - CMAP

... students of third year of Ecole Polytechnique. Our objective is to cover the basic Black-Scholes theory from the modern martingale approach. This requires the development of the necessary tools from stochastic calculus and their connection with partial differential equations. Modeling financial mark ...

... students of third year of Ecole Polytechnique. Our objective is to cover the basic Black-Scholes theory from the modern martingale approach. This requires the development of the necessary tools from stochastic calculus and their connection with partial differential equations. Modeling financial mark ...

Stylized Facts for Business Cycles in Turkey Harun ALP Yusuf Soner BAŞKAYA

... trend terms, we take the natural logarithm of the raw data under the assumption that macroeconomic series are multiplicatively separable7 and use Tramo-Seats methodology to obtain seasonally adjusted series used in the analysis8. For the real GDP and its components, we also analyze relationships usi ...

... trend terms, we take the natural logarithm of the raw data under the assumption that macroeconomic series are multiplicatively separable7 and use Tramo-Seats methodology to obtain seasonally adjusted series used in the analysis8. For the real GDP and its components, we also analyze relationships usi ...

Systemic Contingent Claims Analysis -- Estimating Market

... While there is still no comprehensive theory of MPS related to the measurement of systemic risk, existing approaches can be broadly distinguished based on their conceptual underpinnings regarding several core principles. There are two general approaches: (i) a particular activity causes a firm to fa ...

... While there is still no comprehensive theory of MPS related to the measurement of systemic risk, existing approaches can be broadly distinguished based on their conceptual underpinnings regarding several core principles. There are two general approaches: (i) a particular activity causes a firm to fa ...

Is there any Dependence between Consumer Credit

... with respect to their repayment schedule and their much lower interest rates. The term loans in the dataset are also granted upon credit approval, and are not necessarily subject to collateralization. Both credit instruments should be viewed as consumption credit, in contrast with mortgage-linked or ...

... with respect to their repayment schedule and their much lower interest rates. The term loans in the dataset are also granted upon credit approval, and are not necessarily subject to collateralization. Both credit instruments should be viewed as consumption credit, in contrast with mortgage-linked or ...

Using out-of-sample errors in portfolio optimization

... particular risk model. Given the large number of asset pricing models available in the literature today, I choose to focus on this agnostic approach where no model is assumed as the truth and the optimization simply relies on past correlations and variances.6 For each period and variable, the observ ...

... particular risk model. Given the large number of asset pricing models available in the literature today, I choose to focus on this agnostic approach where no model is assumed as the truth and the optimization simply relies on past correlations and variances.6 For each period and variable, the observ ...

ABSTRACT ESSAYS IN INTERNATIONAL FINANCE Christian Daude, Doctor of Philosophy, 2008

... Many people made useful comments and contributions to the papers included in this dissertation. I will always have fond memories of College Park due to the good friends I have met during my years here. In particular, I would like to thank my co-authors Ernesto Stein and Marcel Fratzscher for giving ...

... Many people made useful comments and contributions to the papers included in this dissertation. I will always have fond memories of College Park due to the good friends I have met during my years here. In particular, I would like to thank my co-authors Ernesto Stein and Marcel Fratzscher for giving ...

Credit ratings and credit risk: Is one measure enough?

... cycles,” (the measurement of which is a stated objective) it cannot vary over the business cycle, so neither can rating to the extent rating re‡ects systematic risk; (4) why risk-averse investors are interested in ratings and why variation in borrowing cost is strongly related to rating: investors ...

... cycles,” (the measurement of which is a stated objective) it cannot vary over the business cycle, so neither can rating to the extent rating re‡ects systematic risk; (4) why risk-averse investors are interested in ratings and why variation in borrowing cost is strongly related to rating: investors ...

USE4 - cloudfront.net

... Using the CAPM framework, the return of any asset can be decomposed into a systematic component that is perfectly correlated with the market, and a residual component that is uncorrelated with the market. The CAPM predicts that the expected value of the residual return is zero. This does not preclud ...

... Using the CAPM framework, the return of any asset can be decomposed into a systematic component that is perfectly correlated with the market, and a residual component that is uncorrelated with the market. The CAPM predicts that the expected value of the residual return is zero. This does not preclud ...

Financial Crises, Risk Premia, and the Term Structure of Risky Assets

... financial crises, and that, as in the data, risk premia are significantly higher in the latter. I contribute to the literature on intermediaries and asset pricing by connecting these models to the literature on disasters, showing they can quantitatively explain many asset pricing facts, and explicit ...

... financial crises, and that, as in the data, risk premia are significantly higher in the latter. I contribute to the literature on intermediaries and asset pricing by connecting these models to the literature on disasters, showing they can quantitatively explain many asset pricing facts, and explicit ...

Strategy Spotlight: Considerations in volatility

... This material is directed exclusively at investment professionals. Any investments to which this material relates are available only to or will be engaged in only with investment professionals. Nothing contained in this material is intended to constitute legal, tax, securities, or investment advice, ...

... This material is directed exclusively at investment professionals. Any investments to which this material relates are available only to or will be engaged in only with investment professionals. Nothing contained in this material is intended to constitute legal, tax, securities, or investment advice, ...