It is well established that financial development and innovation promote economic growth through improving the allocation of capital, enhancing risk management, contributing to price discovery, and increasing market efficiencies. While a vast empirical literature is devoted to the nexus between...

The term "volatility" applies to changeability: both that which can be measured, such as temperatures and stock prices, and that which cannot be easily measured, such as affects and emotions. Quantitative financial volatility has typically been studied quite separately from art, culture, and...

The combination of stochastic derivative pricing models and downside risk measures often leads to the paradox (risk, return) = (−infinity, +infinity) in a portfolio choice problem. The construction of a portfolio of derivatives with high expected returns and very negative downside risk...

Purpose - In futures markets, margin trading not only relaxes leverage constraints but also entails the risk of margin calls. Therefore, existing studies provide inconsistent evidence on low-risk anomalies, raising challenges in understanding leverage constraints in futures markets. This study...

This Live Wire focuses on safety concerns associated with hydrogen and its main derivatives: ammonia and methanol. After an exhaustive review of the literature and measures on hydrogen safety, the study summarized here found robust, well-established standards developed by reputable institutions....

We study the implications of deviations from covered interest rate parity for international capital flows using novel data covering euro-area derivatives and securities holdings. Consistent with a dynamic model of currency risk hedging, we document that investors' holdings of USD bonds decrease...

This paper presents a novel 5-factor model for agricultural commodity risk premiums, an approach not explored in previous research. The model is applied to the specific cases of corn, soybeans, and wheat. Calibration is achieved using a Kalman filter and maximum likelihood, with data from...

Objective To diagnose the relationship between futures contract trading and the volatility of stocks in the Bank Nifty Index. Methodology Time series analysis and the GARCH model are employed to study the interaction between futures trading and spot market volatility. Findings The analysis...

Croatia faces two key labor market challenges: a shortage of labor and the inadequate skills of its existing workforce. These challenges are being shaped by global megatrends, namely, demographic, green, and digital transitions. To address these key challenges, actions are needed on several...

This study examines whether changes in the implied volatility of stock options have cross-sectional predictability for future changes in credit default swap (CDS) spreads in the Korean market. The major findings are as follows. First, in the CDS portfolio analysis, when buying a portfolio with...

This study explores an innovative approach to incorporating option strategies into equity portfolios. It presents an alternative direction that institutional investors could take to overcome their current challenges, in a context where traditionally diversified portfolios of only equity and...

We propose a novel framework to assess systemic risk stemming from the inadequate liquidity preparedness of non-bank financial institutions (NBFIs) to derivative margin calls. Unlike banks, NBFIs may struggle to source liquidity and meet margin calls during periods of significant asset price...

Shocks to a bank's ability to raise liquidity at short notice can trigger depositor panics. Why don't banks take a more active role in managing these risks? We study contingent risk management (hedging) in a standard global-games model of a bank run. Banks fail to hedge precisely when the...

We demonstrate the asset pricing implications of investors' belief heterogeneity in the frequency of news arrival and its joint impact with heterogeneous beliefs about news content. Investors trade volatility derivatives against each other to speculate on the rate of news arrival: greater...

This paper demonstrates that perfectly calibrating a multi-asset model to observed market prices of all basket call options is insufficient to uniquely determine the price of a best-of call option. Previous research on multi-asset option pricing has primarily focused on complete market settings...

In this paper, we study perpetual American put options with a generalized standard put payoff and establish sufficient conditions for the existence and uniqueness of the solution to the associated pricing problem. As a key tool, we express the Black-Scholes operator in terms of elasticity. This...

This study investigates whether and how the complexity of derivative use influences the stock price crash risk in China's capital market, a critical question given the growing use of derivatives in emerging economies where governance structures and disclosure standards vary widely. While prior...

The popular Wishart (WI) processes, first introduced by Bru in 1991, exhibit convenient analytical properties for modeling asset prices, particularly a closed-form characteristic function, and the ability to jointly model stochastic volatility and correlation. These features tend to increase...

A robust model for natural gas prices should simultaneously capture the observed prices of both futures and options. While incorporating a seasonal factor in the convenience yield of the spot price effectively replicates forward curves, it proves insufficient for accurately modelling the options...

This paper enhances the calibration procedure for pricing spread options with liquidity risk. The novelty is the use of Chebyshev interpolation to fit the prices.Numerical experiments reveal that the calibrated parameters are close to the ones obtained by a previous work. However, the fit...

Financial data are expensive and highly sensitive with limited access. We aim to generate abundant datasets given the original prices while preserving the original statistical features. We introduce the Wasserstein Generative Adversarial Network with Gradient Penalty (WGAN-GP) into the field of...

Arbitrage and liquidity are interrelated. Liquidity facilitates arbitrageurs’ trading on deviations from the law of one price. However, whether arbitrage opportunity leads to an increase or decrease in liquidity depends on the cause of the deviation. A demand shock leads to greater liquidity,...

The paper examines the leverage effects and the spillover effects in the base metal cash and futures market. The study also attempts to find the trend and the pattern of volatility clustering in the base metal markets of India. Further, the significance of the risk premium and the possible...

Government bond markets play a critical role in the smooth functioning of the financial system, in the conduct and transmission of monetary policy and in the economy as a whole. Maintaining resilient government bond markets is fundamental for policymakers and authorities. This note examines the...