Large one-off events cause large changes in prices, but may not affect the volatility and correlation dynamics as much as smaller events. In such cases, standard volatility models may deliver biased covariance forecasts. We propose a multivariate volatility forecasting model that is accurate in...

We propose a parsimonious regime switching model to characterize the dynamics in the volatilities and correlations of US deposit banks' stock returns over 1994-2011. A first innovative feature of the model is that the within-regime dynamics in the volatilities and correlation depend on the shape...

An estimator of the ex-post covariation of log-prices under asynchronicity and microstructure noise is proposed. It uses the Cholesky factorization on the correlation matrix in order to exploit the heterogeneity in trading intensity to estimate the different parameters sequentially with as many...

Opening, lunch and closing of financial markets induce a periodic component in the volatility of high-frequency returns. We show that price jumps cause a large bias in the classical periodicity estimators and propose robust alternatives. We find that accounting for periodicity greatly improves...

The quality of statistical risk models is much lower than often assumed. Such models are useful for measuring the risk of frequent small events, such as in internal risk management, but not for systemically important events. Unfortunately, it is common to see unrealistic demands placed on risk...

Accurate prediction of the frequency of extreme events is of primary importance in many financialapplications such as Value-at-Risk (VaR) analysis. We propose a semi-parametric method for VaRevaluation. The largest risks are modelled parametrically, while smaller risks are captured by the...

The dependence of foreign exchange rates on order flow is investigated for four major exchange rate pairs, EUR/USD, EUR/GBP, GBP/USD and USD/JPY, across sampling frequencies ranging from 5 min to 1 week. Strong explanatory power is discovered for all sampling frequencies. We also uncover...