Returns in financial assets show consistent excess kurtosis, indicating the presence of large fluctuations not predicted by Gaussian models. Mandelbrot (1963) first proposed the idea that price changes distributed according to a Lévy stable law. The unique feature of Lévy-stable distributions...

In this Paper we investigate the ability of different models to produce useful VaR-estimates for exchange rate positions. We make a distinction between models that include sophisticated tail properties and models that do not. The former type of models often leads to too extreme VaR-estimates,...

It is a well-documented empirical fact that index option prices systematically differ from Black-Scholes prices. However, previous research provides inconclusive results whether the observed volatility smile could be explained by a discretetime dynamic model of stock returns with skewed,...

Traditional financial theory predicts that noise trader sentiment plays no role for the cross-sectional pattern in stock returns and in the cross-section of option prices. However, empirical research is challenging that view and finds evidence that investor sentiment can be predicted to affect...

The record-breaking prices observed in the art market over the last three years raise the question of whether we are experiencing a speculative bubble. Given the difficulty to determine the fundamental value of artworks, we apply a right-tailed unit root test with forward recursive regressions...

Using an equilibrium asset and option pricing model in a production economy under jump diffusion, we show theoretically that the aggregated excess market returns can be predicted by the skewness risk premium, which is constructed to be the difference between the physical and the risk-neutral...

The record-breaking prices observed in the art market for the last three years have rais the question of whether we are experiencing a speculative bubble. Given the difficulty to determine the fundamental value of artworks, we apply a right-tailed unit root test with forward recursive...

This paper examines whether trading based on market sentiment can explain mispricing in S&P 500 options. We test the heterogeneous agent s option pricing model developed in Frijns et al. (2010), where our agents have different beliefs about the future level of market volatility and trade...

Empirical studies have shown that implied volatilities of long-term options react quite strongly to changes in implied volatilities of short-term options and do not display the rationally expected smoothing behavior. Given the observed strong mean-reversion in volatility, those findings have...

Previous research focuses on the importance of modeling the multivariate distribution for optimal portfolio allocation and active risk management. However, available dynamic models are not easily applied for high-dimensional problems due to the curse of dimensionality. In this paper, we extend...