Technical paper/Volatility
Haircutting non-cash collateral
Wujiang Lou develops a parametric haircut model to conduct sensitivity tests and capture market liquidity risk
An operational risk-based regime-switching model for stock prices
This paper proposes a new risk-based regime-switching model for stock prices to examine the impact of operational risk events on stock prices.
Comparing multivariate volatility forecasts by direct and indirect approaches
This paper investigates direct and indirect volatility evaluations in the multivariate framework by means of a Monte Carlo simulation
Local-stochastic volatility: models and non-models
Lorenzo Bergomi exposes a condition important to the use of LSV models in trading
Initial margin model sensitivity analysis and volatility estimation
This paper presents a new approach to parameter selection based on the statistical properties of the worst loss over a margin period of risk estimated by the margin model under scrutiny.
Trading lightly: cross-impact and optimal portfolio execution
A liquidity model for basket of correlated securities is presented
Does higher-frequency data always help to predict longer-horizon volatility?
This paper shows that realized conditional autocorrelation in return residuals is a strong predictor of the relative performance of different frequency models of volatility.
Are the GIPS sovereign debt markets efficient during a crisis?
This paper aims to analyze the efficiency of the Greek, Italian, Portuguese and Spanish (ie, GIPS) sovereign debt markets during crises: in essence, the recent global financial and sovereign debt crises
Time-varying beta and the global financial crisis: evidence from Chinese and Indian firms
This paper empirically investigates the effects of the global financial crisis of 2008 on the time-varying beta of twenty firms from China and India.
A pairs trading strategy based on switching-regime volatility for commodity futures
A pairs trading strategy can give a larger Sharpe ratio with respect to classical methods
How risk managers should fix tracking error volatility and value-at-risk constraints in asset management
In this paper, the author determines an optimal value for a set of limits composed of the lower limit on TEV, the upper limit on TEV and the upper limit on VaR.
Scaling by the square-root-of-time rule: an empirical investigation using five market indexes
This paper analyzes five composite stock indexes to determine the different behaviors of scaling across markets.
‘Hot-start’ initialisation of the Heston model
Serguei Mechkov initialises Heston model’s parameters using probability distributions
Commodity volatility, skew and inverse leverage effect
Krzysztof Wolyniec on leverage effects and volatility in commodity markets
Interest rate models enhanced with local volatility
Lingling Cao and Pierre Henry-Labordère implement Dupire's local volatility in interest rate models
The effect of market conditions on forward-looking portfolio performance
The authors of this paper apply a forward-looking approach to the minimum variance portfolio optimization problem for a selection of 100 stocks.
The forward smile in local–stochastic volatility models
The Authors introduce a closed-form approximation for the forward implied volatilities.
Wavelet decomposition and applied portfolio management
In order to separate short-term noise from long-term trends, this paper decomposes financial return series into their time and frequency domains.
Cross-dependent volatility
Julien Guyon introduces cross-dependent volatility models and calibrate them to market smiles
Performance versus turnover: a story by 4000 alphas
This paper analyzes empirical data for 4000 real-life trading portfolios with holding periods of about 0.7-19 trading days.
Non-parametric local volatility formula for interest rate swaptions
Gatarek, Jabłecki and Qu introduce a Dupire-like formula for swaptions
B-spline techniques for volatility modeling
In this paper the use of B-splines is advocated for volatility modeling within the calibration of stochastic local volatility (SLV) models and for the parameterization of an arbitrage-free implied volatility surface calibrated to sparse option data.
Downside risk measure performance in the presence of breaks in volatility
This paper proposes a loss function-based framework for the comparative measurement of the sensitivity of quantile downside risk measures to breaks in volatility or distribution.
Wrong-way risk done right
Jacky Lee and Luca Capriotti present an arbitrage-free valuation method for counterparty exposure of credit derivates portfolios.