This paper assesses the empirical performance of an intertemporal option pricing model with latent variables which generalizes the Hull-White stochastic volatility formula. Using this generalized formula in an ad-hoc fashion to extract two implicit parameters and forecast next day S&P 500 option...

In this paper, we characterize the asymmetries of the smile through multiple leverage effects in a stochastic dynamic asset pricing framework. The dependence between price movements and future volatility is introduced through a set of latent state variables. These latent variables can capture...

This paper develops a general stochastic framework and an equilibrium asset pricing model that make clear how attitudes towards intertemporal substitution and risk matter for option pricing. In particular, we show under which statistical conditions option pricing formulas are not...

In this survey, we review econometric models for conducting statistical inference on option price data. We limit our review to European options on a stock index as well as to statistical methods which have been specifically developped for options. Emphasis is put on the synthesis of the various...

In the standard consumption capital asset pricing model (CCAPM), the curvature of the investor's utility function captures two aspects of preferences: as the concavity of the function increases so does his aversion to risk as well as his desire to smooth consumption intertemporally. This...

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 concur on the pricing formula. In this note, we...

Latent variable models in finance originate both from asset pricing theory and time series analysis. These two strands of literature appeal to two different concepts of latent structures, which are both useful to reduce the dimension of a statistical model specified for a multivariate time...

We build and estimate an equilibrium model of the term structure of interest rates based on a recursive utility specification. We contrast it with an arbitrage-free model, where prices of risk are estimated freely without preference constraints. In both models, nominal bond yields are affine...

This paper proposes a test for common conditionally heteroskedastic (CH) features in asset returns. Following Engle and Kozicki (1993), the common CH features property is expressed in terms of testable overidentifying moment restrictions. However, as we show, these moment conditions have a...

A number of information-theoretic alternatives to GMM have recently been proposed in the literature. For practical use and general interpretation, the main drawback of these alternatives, particularly in the case of conditional moment restrictions, is that they rely on high dimensional convex...