We propose a method for constructing an arbitrage-free multi-asset pricing model which is consistent with a set of observed single- and multi-asset derivative prices. The pricing model is constructed as a random mixture of N reference models, where the distribution of mixture weights is obtained...

Whether idiosyncratic volatility has increased over time and whether it is a good predictor of future returns is a matter of active debate. We show formally through central limit arguments that there is a direct relationship between the dynamics of the cross-sectional variance of realized...