A volatility model must be able to forecast volatility; this is the central requirement in almost all financial applications. In this paper we outline some stylised facts aboutvolatility that should be incorporated in a model; pronounced persistence and meanreversion, asymmetry such that the...

In this paper we analyze and interpret the quote price dynamics of 100 NYSE stockswith varying average trade frequencies. We specify an error-correction model for the logdifference of the bid and the ask price, with the spread acting as the error-correctionterm, and include as regressors the...

volatility model must be able to forecast volatility; this is the central requirement in almost all financial applications. In this paper we outline some stylised facts aboutvolatility that should be incorporated in a model; pronounced persistence and meanreversion, asymmetry such that the sign...

In empirical finance and in time series applied economics in general, the least squares model is the workhorse. In class there is much discussion of the assumptions of exogeneity, homoskedasticity and serial correlation. However in practice it may be unstable regression coefficients that are...

Building models for high dimensional portfolios is important in risk management and asset allocation. Here we propose a novel and fast way of estimating models of time-varying covariances that overcome an undiagnosed incidental parameter problem which has troubled existing methods when applied...

We investigate the sources of skewness in aggregate risk-factors and the cross-section of stock returns. In an ICAPM setting with conditional volatility, we find theoretical time series predictions on the relationships among volatility, returns, and skewness for priced risk factors. Market...

We propose a hybrid model of portfolio credit risk where the dynamics of the underlying latent variables is governed by a one factor GARCH process. The distinctive feature of such processes is that the long-term aggregate return distributions can substantially deviate from the asymptotic...

We propose a hybrid model of portfolio credit risk where the dynamics of the underlying latent variables is governed by a one factor GARCH process. The distinctive feature of such processes is that the long-term aggregate return distributions can substantially deviate from the asymptotic...

The volatility term structure (VTS) reflects market expectations of average asset volatility over different time horizons. Various stochastic volatility models provide forecasts of the VTS and how it shifts in response to changes in market conditions. This paper develops a methodology for...

The Multiplicative Error Model introduced by Engle (2002) for positive valued processes is specified as the product of a (conditionally autoregressive) scale factor and an innovation process with positive support. In this paper we propose a multivariate extension of such a model, by taking into...