This paper introduces the Inverse Gamma (IGa) stochastic volatility model with time-dependent parameters, defined by the volatility dynamics dVt = κt.(θt − Vt).dt λt.Vt.dBt. This non-affine model is much more realistic than classical affine models like the Heston stochastic volatility...

We examine the form of heteroskedasticity in Deutsche Mark futures price data and compare different specifications of the particular way that the variance is changing over time. The martingale hypothesis is tested with daily and weekly rates of change of futures prices for the Deutsche Mark and...

This paper derives optimal hedge ratios with infrequent extreme news events modeled as common jumps in foreign currency spot and futures rates. A dynamic hedging strategy based on a bivariate GARCH model augmented with a common jump component is proposed to manage currency risk. We find...

The martingale hypothesis for daily and weekly rates of change of futures prices for five currencies is tested in this paper. With daily data, we find some evidence against the null hypothesis for each currency. Although institutionally imposed limits on daily price changes were binding fairly...

This paper proposes a new class of GARCH-jump in mean models to test the presence of time varying risk premia associated with normal and extreme news events. The model allows for a dynamic jump component with autoregressive jump intensity, long-range dependence in volatility dynamics, and...

Offshore assets present investors with an increased investment universe and additional opportunities for reward, but embedded exposure to exchange rates can result in additional risk. In this work, we consider a global equity portfolio of five equity indices (US, Japan, Europe, UK and Canada),...

This paper examines the relationship between currency option's implied skewness and its future realized skewness, where the difference is known as the skewness risk premium (SRP). The SRP indicates whether investors pay a premium to be insured against future crash risk. Past investigations about...

The foreign currency market in a small open economy, like Israel, plays a major role in fiscal and monetary policy decisions, through its effects on the financial markets and the real economy. In this paper we explore the liquidity and efficiency in three related foreign exchange options markets...

The deepening of the recent crisis was driven by the simultaneous devaluation of stock wealth, housing wealth and commodity wealth. The potential for this devaluation process had been “built up” during the boom of stock prices, house prices and commodity prices between 2003 and 2007. Hence,...