This paper introduces the concept of stochastic volatility of volatility in continuous time and, hence, extends standard stochastic volatility (SV) models to allow for an additional source of randomness associated with greater variability in the data. We discuss how stochastic volatility of...

We revisit the question whether commodities should be included in investors' portfolios. We employ for the first time a stochastic dominance efficiency (SDE) approach to construct optimal portfolios with and without commodities and we evaluate their comparative performance. SDE circumvents the...

We revisit the question whether commodities should be included in investors' portfolios. We employ for the first time a stochastic dominance efficiency (SDE) approach to construct optimal portfolios with and without commodities and we evaluate their comparative performance. SDE circumvents the...

We revisit the question whether commodities should be included in investors' portfolios. We employ for the first time a stochastic dominance efficiency (SDE) approach to construct optimal portfolios with and without commodities and we evaluate their comparative performance. SDE circumvents the...

Stochastic volatility models are widely used in interest rate modeling to match the option smiles -- the two most popular are the Heston model and the SABR one. These have been incorporated into arbitrage-free term structure frameworks, Heston-LMM and SABR-LMM respectively.In this paper we...

We propose a new methodology for obtaining arbitrage free European option prices from a SABR-like parameterisation. The method consists of specifying the joint distribution of the volatility and underlying at a given expiry and requires the calculation of a simple one-dimensional numerical...

We propose two nonparametric transition density-based speciÞcation tests for continuous-time diffusion models. In contrast to marginal density as used in the literature, transition density can capture the full dynamics of a diffusion process, and in particular, can distinguish processes with...