Structural credit risk models have faced difficulties in matching observed market credit spreads while simultaneously matching default rates, recoveries, leverage and risk premia - a shortcoming that has become known as the credit spread puzzle. We ask whether stochastic asset volatility, as an...

Structural credit risk models have faced difficulties in matching observed market credit spreads while simultaneously matching default rates, recoveries, leverage and risk premia - a shortcoming that has become known as the credit spread puzzle. We ask whether stochastic asset volatility, as an...

Structural credit risk models have faced difficulties in matching observed market credit spreads while simultaneously matching default rates, recoveries, leverage and risk premia - a shortcoming that has become known as the credit spread puzzle. We ask whether stochastic asset volatility, as an...

Most extant structural credit risk models underestimate credit spreads while matching default rates, recoveries, leverage, and equity risk premia - a shortcoming known as the credit spread puzzle. We calibrate and estimate a model able to explain medium to long-term credit spreads by...

Stock price jump risk is known to be important for explaining the option-implied volatility skew generated by the Black-Scholes model. Financial leverage (distress) has an important impact on the shape of the implied volatility skew, however, we find that the impact of leverage on the implied...

This paper studies the characteristics of firm level equity volatility. There is a lack of consensus in the finance literature as to the relative statistical and economic significance of the leverage and feedback effects on equity volatility. We provide a dynamic framework to investigate...

We use intraday data to compute weekly realized variance, skewness, and kurtosis for equity returns and study the realized moments' time-series and cross-sectional properties. We investigate if this week's realized moments are informative for the cross-section of next week's stock returns. We...

State-of-the-art stochastic volatility models generate a 'volatility smirk' that explains why out-of-the-money index puts have high prices relative to the Black-Scholes benchmark. These models also adequately explain how the volatility smirk moves up and down in response to changes in risk....