This paper defines the news impact curve that measures how new information is incorporated into volatility estimates. Various new and existing ARCH models, including a partially nonparametric one, are compared and estimated with daily Japanese stock return data. New diagnostic tests are...

The authors use an extension of the equilibrium framework of M. Rubinstein (1976) and M. Brennan (1979) to derive an option valuation formula when the stock return volatility is both stochastic and systematic. Their formula incorporates a stochastic volatility process as well as a stochastic...