Stochastic volatility models, aka SVOL, are more difficult to estimate than standard time-varying volatility models … volatility forecasts especially around crucial periods of high volatility. We extend the basic SVOL needs to allow for the … model diagnostics, such as the identification of outliers for stochastic volatility models or the assessment of the …

In this paper, we provide both qualitative and quantitative measures of the cost of measuring the integrated volatility … by the realized volatility when the frequency of observation is fixed. We start by characterizing for a general diffusion … compute the mean and variance of this noise and the correlation between the noise and the integrated volatility in the …

data to test for nonlinear leverage versus volatility feedback effects and to test for causality between stock returns and …

leverage effect and the volatility feedback effect. We stress the importance of distinguishing between realized volatility and … implied volatility, and find that implied volatilities are essential for assessing the volatility feedback effect. The … leverage hypothesis asserts that return shocks lead to changes in conditional volatility, while the volatility feedback effect …

we examine the properties and hedging behavior of volatility options. Unlike American options, European call options on …This paper examines the valuation of European- and American-style volatility options based on a general equilibrium … stochastic volatility framework. Properties of the optimal exercise region and of the option price are provided when volatility …

This paper is the first to present evidence on the magnitude of derivative use by mutual funds. Using a unique data set … of detailed balance sheet information on open-end mutual funds, we characterize the nature of derivative use by these … past returns.Specifically we show that past returns are positively related to derivative use, consistent with the cash flow …

. Empirically, we show that a firm's reactiveness to variations in risk prices is linked to its hedging activities. We also argue …

Recently, Duan (1995) proposed a GARCH option pricing formula and a corresponding hedging formula. In a similar ARCH …-type model for the underlying asset, Kallsen and Taqqu (1994) arrive at a hedging formula different from Duan's , although they … and Taqqu corresponds to the usual concept of hedging in the context of ARCH-type models. We argue however that Duan …