This paper seeks to disentangle the sources of correlations between high-, mid- and lowcap stock indexes from the German prime standard. In principle, such comovement can arise from direct spillover between the variables or due to common factors. By standard means, these different components are...

In this paper we introduce the dynamic semiparametric factor model (DSFM) for electricity forward curves. The biggest advantage of our approach is that it not only leads to smooth,seasonal forward curves extracted from exchange traded futures and forward electricity contracts, but also to a...

High-dimensional regression problems which reveal dynamic behavior are typicallyanalyzed by time propagation of a few number of factors. The inference on thewhole system is then based on the low-dimensional time series analysis. Such highdimensional problems occur frequently in many different...

This paper is a progress report on understanding the relationship betweenprices and allocations of risks on financial markets versus macroeconomicchoices and allocations. In this paper, I investigate the scope of a modelwith exogenous habit formation – or “catching up with the Joneses”,...

Using structural VARs, I find that external shocks are an important source of macroeconomic fluctuations in emerging markets. Furthermore, U.S. monetary policy shocks affect quickly and strongly interest rates and the exchange rate in a typical emerging market. The price level and real output in...

The implied volatility of a European option as a function of strike price and time to maturity forms a volatility surface. Traders price according to the dynamics of this high dimensional surface. Recent developments that employ semiparametric models approximate the implied volatility surface...

We decompose by origin the sources of the variation in real aggregate output and aggregate price level in the Czech Republic, Hungary and Poland. We find that a sizable fraction of the variation is attributable to external shocks, especially so for aggregate price level. We show that euroarea...

In this paper we estimate and empirically test different behavioral theories of consumer reference price formation. Two major theories are proposed to model the reference price reaction: assimilation contrast theory and prospect theory. We assume that different consumer segments will use...

In the data, individual prices change frequently and by large amounts. In standardsticky price models, frequent and large price changes imply a fast response of the aggregate price level to nominal shocks. This paper presents a model in which price setting firms optimally decide what to observe,...

Implied volatility is one of the key issues in modern quantitative finance, since plain vanilla option prices contain vital information for pricing and hedging of exotic and illiquid options. European plain vanilla options are nowadays widely traded, which results in a great amount of...