Recently, Diebold and Li (2003) obtained good forecasting results foryield curves in a reparametrized Nelson-Siegel framework. We analyze similarmodeling approaches for price curves of variance swaps that serve nowadaysas hedging instruments for options on realized variance. We consider the...

Using a Dynamic Semiparametric Factor Model (DSFM) we investigate the term structure of interest rates. The proposed methodology is applied to monthly interest rates for four southern European countries: Greece, Italy, Portugal and Spain from the introduction of the Euro to the recent European...

The volatility implied by observed market prices as a function of the strikeand time to maturity form an Implied Volatility Surface (IV S). Practicalapplications require reducing the dimension and characterize its dynamicsthrough a small number of factors. Such dimension reduction is...

The Value-at-Risk calculation reduces the dimensionality of the risk factor space. The main reasons for such simplifications are, e.g., technical efficiency, the logic and statistical appropriateness of the model. In Chapter 2 we present three simple mappings: the mapping on the market index,...

High-dimensional regression problems which reveal dynamic behavior are typicallyanalyzed by time propagation of a few number of factors. The inference on thewhole system is then based on the low-dimensional time series analysis. Such highdimensional problems occur frequently in many different...