We introduce a new class of flexible and tractable matrix a±ne jump-diffusions (AJD) to modelmultivariate sources of financial risk. We first provide a complete transform analysis of this model class,which opens a range of new potential applications to, e.g., multivariate option pricing with...

This paper studies the information content of the S&P 500 and VIX markets on the volatility of the S&P 500 returns. We estimate a flexible affine model based on a joint time series of underlying indexes and option prices on both markets. An extensive model specification analysis reveals that...

We analyze the impact of funding costs and margin requirements on prices of index options traded on the CBOE. We propose a model that gives upper and lower bounds for option prices in the absence of arbitrage in an incomplete market with differential borrowing and lending rates. We show that...

This paper shows that the VIX market contains information on the variance of the S&P 500 returns, which is not already spanned by the S&P 500 market. We estimate a flexible affine model based on a joint time series of underlying indexes and option prices on both markets. We find that including...

We examine both theoretically and empirically whether increased trading activity in index futures and exchange traded funds (ETFs) is associated with higher equity return correlations. Our model predicts that demand shocks to ETFs and futures lead to stronger price comovement for index stocks...

This paper shows that the VIX market contains information that is not already contained by the S&P 500 market on the variance of the S&P 500 returns. We estimate a flexible affine model based on a joint time series of underlying indexes and option prices on both markets. We find that including...

We reexamine the evolution of the idiosyncratic volatility (IV) of US firms between 1962 and 2016. We theoretically identify three fundamental drivers for the IV: market concentration, average variance, and average correlation. Exploring the separate impacts of these drivers on IV, we find that...

We introduce a new class of flexible and tractable matrix affine jump-diffusions (AJD) to model multivariate sources of financial risk. We first provide a complete transform analysis of this model class, which opens a range of new potential applications to, e.g., multivariate option pricing with...