disaster. In the model, aggregate consumption follows a normal distribution with low volatility most of the time, but with some … the equity premium, while time-variation in the probability of this outcome drives high stock market volatility and excess … rates predictable? This paper proposes an answer to these questions based on a time-varying probability of a consumption …

disaster. In the model, aggregate consumption follows a normal distribution with low volatility most of the time, but with some … the equity premium, while time-variation in the probability of this outcome drives high stock market volatility and excess … rates predictable? This paper proposes an answer to these questions based on a time-varying probability of a consumption …

concentrate on modeling the conditional mean. However, financial time series exhibit certain stylized features such as volatility … to address this issue and to gain insights on the volatility patterns of CDS spreads, bond yield spreads and stock prices … creditworthiness of debtors more reliably. The obtained findings suggest that volatility takes a significant higher level in times of …

In a tractable stochastic volatility model, we identify the price of the smile as the price of the unspanned risks … traded in SPX option markets. The price of the smile reflects two persistent volatility and skewness risks, which imply a …-form and structural models of stochastic volatility …