There appears to be a consensus that the recent instability in global financial markets may be attributable in part to the failure of financial modeling. More specifically, current risk models have failed to properly assess the risks associated with large adverse stock price behavior. In this...

FINANCIAL MODELS WITH LéVY PROCESSES AND VOLATILITY CLUSTERING The failure of financial models has been identified by some market observers as a major contributor to the global financial crisis. More specifically, it's been argued that the underlying assumption made in most of these models-that...

In this paper we consider several time-varying volatility and/or heavy-tailed models to explain the dynamics of return time series and to fit the volatility smile for exchange-traded options where the underlying is the main ‘Borsa Italiana' stock index. Given observed prices for the time...