An intertemporal CAPM with stochastic volatility

Appendix to An Intertemporal CAPM with Stochastic Volatility

Development, Volatility and Intertemporal Distortions

Why is macroeconomic volatility in poor countries so much higher than in rich countries? And to what extent can policy improve welfare by mitigating this volatility? In this paper I evaluate the extent to which frictions in financial markets generate more volatile macroeconomic outcomes in poor countries. I motivate my focus on financial frictions with a business cycle accounting exercise using...

Complete Models with Stochastic Volatility

The paper proposes an original class of models for the continuous time price process of a nancial security with non-constant volatility. The idea is to deene instantaneous volatility in terms of exponentially-weighted moments of historic log-price. The instantaneous volatility is therefore driven by the same stochastic factors as the price process, so that unlike many other models of non-consta...

Passport Options with Stochastic Volatility

A passport option is a call option on the profits of a trading account. In this article we investigate the robustness of passport option pricing by incorporating stochastic volatility. The key feature of a passport option is the holders’ optimal strategy. It is known that in the case of exponential Brownian motion the strategy is to be long if the trading account is below zero and short if the ...

Stochastic Volatility

The volatility of a nancial asset is the variance per unit time of the logarithm of the price of the asset. Volatility has a key role to play in the determination of risk and in the valuation of options and other derivative securities. The widespread Black-Scholes model for asset prices assumes constant volatility. The purpose of this chapter is to review the evidence for non-constant volatilit...