We propose a new method for pricing options based on GARCH models with filtered historical innovations. In an incomplete market framework we allow for different distributions of the historical and the pricing return dynamics enhancing the model flexibility to fit market option prices. An...

We propose a simple class of semiparametric multivariate GARCH models, allowing for asymmetric volatilities and time-varying conditional correlations. Estimates for time-varying conditional correlations are constructed by means of a convex combination of estimates for averaged correlations...

The American put is one of the oldest problems in mathematical finance. We review the development of the relevant literature over the last 40 years. Today the mainstream computational problems have been solved satisfactorily and the target of research is shifting towards the development of...

The first four conditional moments of the integrated variance implied by the GARCH diffusion process are derived analytically. Based on these moments and on a power series method an analytical approximation formula to price European options under the GARCH diffusion model is obtained. Monte...

The CKLS (1992) short-term risk-free interest rate process leads to valuation model for both default free bonds and contingent claims that can only be solved numerically for the general case. Valuation equations of this nature in the past have been solved using the Crank Nicolson scheme. In this...

We present a multivariate, non-parametric technique for constructing reliable daily VaR predictions for individual assets belonging to a common equity market segment, which takes also into account the possible dependence structure between the assets and is still computationally feasible in large...

In this paper we investigate portfolio coskewness using a quadratic market model as return generating process. It is shown that portfolios of small (large) firms have negative (positive) coskewness with market. An asset pricing model including coskewness is tested through the restrictions it...

The term structure of American interest rates is filtered to reduce the influence of cross correlations and auto correlations on its factors. A three-factor model is fitted to the filtered data. Contrary to most studies of the term structure on monthly data, performing statistical tests we...

Over the years a number of two-factor interest rate models have been proposed that have formed the basis for the valuation of interest rate contingent claims. This valuation equation often takes the form of a partial differential equation that is solved using the finite difference approach. In...