Study of volatility has been considered by the academics and decision makers dur-ing two last decades. First since the volatility has been a risk criterion it has been used by many decision makers and activists in capital market. Over the years it has been of more importance because of the effect of volatility on economy and capital markets stability for stocks, bonds, and foreign exchange mark...

In recent years, authors have focused on modeling and forecasting volatility in financial series it is crucial for the characterization of markets, portfolio optimization and asset valuation. One of the most used methods to forecast market volatility is the linear regression. Nonetheless, the errors in prediction using this approach are often quite high. Hence, continued research is conducted t...

We comprehensively examine the effects of stock return volatility on firms’ financial and investment decisions. Consistent with theories of investment with financing frictions, firms with high volatility actively reduce their leverage, cut investment, increase cash holding, cut non-cash current assets such as inventories and account receivables, and cut dividend. The effects of volatility are s...

We study the dynamic relation between daily stock returns and innovations in option-derived implied volatilities. By simultaneously analyzing innovations in index-level and firm-level implied volatilities, we distinguish between innovations in systematic and idiosyncratic volatility in an effort to better understand the asymmetric volatility phenomenon. Our results indicate that the relation be...

Volatility derivatives are becoming increasingly popular as means for hedging unexpected changes in volatility. Although pricing volatility derivatives demands extreme care in modeling the underlying volatility process, not much attention has been devoted to the complete specification of the autonomous process that volatility follows in continuous time. Despite the fact that jumps are widely co...

We implement an estimator of the model-free implied volatility derived by Britten-Jones and Neuberger (2000) and investigate its information content in the S&P 500 index options. In contrast to the commonly used Black-Scholes implied volatility, the model-free implied volatility is not based on any specific option pricing model and thus provides a direct test of the informational efficiency of ...

This paper introduces a new class of stochastic volatility models which allows for stochastic volatility of volatility. Such models are given by volatility modulated non–Gaussian Ornstein Uhlenbeck processes. We study the probabilistic properties of such models both under the physical and under the risk neutral probability measure, where we focus in particular on the role of the volatility of v...