We argue that negative skew and positive mean of the distribution of stock returns are largely due to the broken symmetry of stochastic volatility governing gains and losses. Starting with stochastic differential equations for stock returns and for stochastic volatility, we argue that the...

In this paper, we study an intertemporal utility maximization problem in which an investor chooses consumption and portfolio strategies in the presence of a stochastic factor and a no-borrowing constraint. In the spirit of the Kim-Omberg model, the stochastic factor represents the excess return...

Statistical inference-both estimation and testing-for stochastic volatility (SV) models is known to be challenging and computationally demanding. We propose simple and efficient estimators for SV models with conditionally heavy-tailed error distributions, particularly the Student's t and...

We investigate the impact of structural shocks on the joint distribution of future real GDP growth and inflation in the euro area. We model the conditional mean of these variables, along with selected financial indicators, using a VAR and perform quantile regressions on the VAR residuals to...

We characterize asymmetric tail risk across over one hundred U.S. macroeconomic and financial variables using a dynamic factor model with stochastic volatility. The model unifies growth-at-risk, inflation-at-risk, and sectoral heterogeneity through common factors whose volatility responds...

I use Bayesian VARs with stochastic volatility to forecast global temperatures and sea level and ice cover in the Northerin emisphere until 2010, by exploiting (i) their long-run equilibrium relationship with climate change drivers (CCDs) and (ii) the relationship between world GDP and...

We propose a state-dependent Phillips curve (PC) where the regime has changed endogenously. Using this framework, a free-standing PC is constructed. This study tests the robustness of the model, various types of inflation, slack measures, and various expectation measures. The PC is found to work...

This paper introduces a novel approach to simulation smoothing for nonlinear and non-Gaussian state space models. It allows for computing smoothed estimates of the states and nonlinear functions of the states, as well as visualizing the joint smoothing distribution. The approach combines...

We propose a factor correlated unobserved components (FCUC) model to analyze the sticky and flexible components of U.S. inflation. The proposed FCUC framework estimates trend inflation and component cycles in a flexible stochastic environment with time-varying volatility, factor loadings, and...

I use Bayesian VARs with stochastic volatility to forecast global temperatures and sea level and ice cover in the Northerin emisphere until 2010, by exploiting (i) their long-run equilibrium relationship with climate change drivers (CCDs) and (ii) the relationship between world GDP and...

We propose a factor correlated unobserved components (FCUC) model to analyze the sticky and flexible components of U.S. inflation. The proposed FCUC framework estimates trend inflation and component cycles in a flexible stochastic environment with time-varying volatility, factor loadings, and...

This paper introduces a novel approach to simulation smoothing for nonlinear and non-Gaussian state space models. It allows for computing smoothed estimates of the states and nonlinear functions of the states, as well as visualizing the joint smoothing distribution. The approach combines...

We solve an expected utility-maximization problem with a Value-at-risk constraint on the terminal portfolio value in an incomplete financial market due to stochastic volatility. To derive the optimal investment strategy, we use the dynamic programming approach. We demonstrate that the value...

This paper proposes a parsimonious reparametrization for time-varying parameter models that captures smooth dynamics through a low-dimensional state process combined with B-spline weights. We apply this framework to TVP-VARs, yielding Moderate TVP-VARs that retain the interpretability of...

We propose a state-dependent Phillips curve (PC) where the regime has changed endogenously. Using this framework, a free-standing PC is constructed. This study tests the robustness of the model, various types of inflation, slack measures, and various expectation measures. The PC is found to work...

We introduce generalisations of the COGARCH model of Klüppelberg et al. (J. Appl. Probab. 41:601–622 2004 ) and of the volatility and price model of Barndorff-Nielsen and Shephard (J. R. Stat. Soc., Ser. B Stat. Methodol. 63:167–241 2001 ) to a Markov-switching environment. These...

This paper investigates the importance of time-varying parameters in US macro-financial linkages. To do so, we adopt a flexible hybrid time-varying parameter Bayesian vector autoregression with stochastic volatility empirical framework. We find that, first, macro-financial linkages are mainly...

This paper proposes a parsimonious reparametrization for time-varying parameter models that captures smooth dynamics through a low-dimensional state process combined with B-spline weights. We apply this framework to TVP-VARs, yielding Moderate TVP-VARs that retain the interpretability of...

The effects of stochastic volatility, jump clustering, and regime switching are considered when pricing variance swaps. This study established a two-stage procedure that simplifies the derivation by first isolating the regime switching from other stochastic sources. Based on this, a novel...

In this paper, we investigate non-linear linkages between Bitcoin and the unconventional monetary policies of the European Central Bank (ECB). In particular, we examine whether a low-interest rate environment resulting from QE indirectly encourages investors to move towards Bitcoin. Using a...

We present an approach for pricing American put options with a regime-switching volatility. Our method reveals that the option price can be expressed as the sum of two components: the price of a European put option and the premium associated with the early exercise privilege. Our analysis...