This paper presents the first comparison of the accuracy of density forecasts for stock prices. Six sets of forecasts are evaluated for DJIA stocks, across four forecast horizons. Two forecasts are risk-neutral densities implied by the Black-Scholes and Heston models. The third set are...

We employ the forward-looking implied dividend information contained in option prices to predict dividend cuts and omissions during the recent financial crisis. The large number of dividend cuts and omissions during the 2008-09 financial crisis period provides the opportunity to study the...

Daily returns of financial assets are frequently found to exhibit positive autocorrelation at lag 1. When specifying a linear AR(l) conditional mean, one may ask how this predictability affects option prices. We investigate the dependence of option prices on autoregressive dynamics under...

This paper examines the properties of the variance risk premium (VRP). We propose a flexible asset pricing model that captures co-jumps in prices and volatility, and self-exciting jump clustering. We estimate the model on equity returns and variance swap rates at different horizons. The total...

We propose a new variational approximation of the joint posterior distribution of the log-volatility in the context of large Bayesian VARs. In contrast to existing approaches that are based on local approximations, the new proposal provides a global approximation that takes into account the...

In this paper we apply the multivariate construction for Lévy processes introduced by Ballotta and Bonfiglioli (2014) to propose an integrated model for the joint dynamics of FX exchange rates and asset prices. We show that the proposed construction is consistent in terms of symmetries with...

We apply a two-step strategy to forecast the dynamics of the volatility surface implicit in option prices to all American-style options written on the stocks that have entered the Dow Jones Industrial Average Index between 2004 and 2016. We explore whether the implied volatilities extracted...

The illiquidity of long-maturity options has made it difficult to study the term structures of option spanning portfolios. This paper proposes a new estimation and inference framework for these option-implied term structures that addresses long-maturity illiquidity. By building a sieve estimator...

We document that a theoretically founded, real-time, and easy-to-implement option-based measure, termed synthetic-stock difference (SSD), accurately estimates the part of stock's expected return arising from stock's transaction costs. We calculate SSD for U.S. optionable stocks. SSD can be more...