This paper introduces a no-arbitrage framework to assess how macroeconomic factors help explain the risk-premium agents require to bear the risk of fluctuations in stock market volatility. We develop a model in which return volatility and volatility risk-premia are stochastic and derive no-arbitrage conditions linking volatility to macroeconomic factors. We estimate the model using data related...

We construct a risk-neutral stochastic volatility model using no-arbitrage pricing principles. We then study the behavior of the implied volatility of options that are deep in and out of the money according to this model. The motivation of this study is to show the diierence in the asymptotic behavior of the distribution tails between the usual Black-Scholes log-normal distribution and the risk...

Nowadays many researchers use GARCH models to generate volatility forecasts. However, it is well known that volatility persistence, as indicated by the sum of the two parameters G1 and A1[1], in GARCH models is usually too high. Since volatility forecasts in GARCH models are based on these two parameters, this may lead to poor volatility forecasts. It has long been argued that this high persist...

We consider the pricing of volatility products and especially volatility and variance swaps. Under risk-neutral valuation we provide closed form formulae for volatility-average and variance swaps. Also we provide a general partial differential equation for derivatives that have an extra dependence on an average of the volatility. We give approximate solutions of this equation for volatility pro...

The literature on volatility modelling and option pricing is a large and diverse area due to its importance and applications. This paper provides a review of the most significant volatility models and option pricing methods, beginning with constant volatility models up to stochastic volatility. We also survey less commonly known models e.g. hybrid models. We explain various volatility types (e....

 Up to now, the impact of real exchange rate on the non-oil exports of Iran has been mainly on focus. However, the more important aspect of the fluctuations in exchange rate is its degree of volatility which can have profound effect on the non-oil exports. Hence, the main objective of this paper is to investigate the linkage between non-oil exports and the real exchange rate volatility for Iran...

This study examines the impacts of real exchange rate fluctuations on the companies' strategic investments in Iran. The data of 92 listed companies in Tehran Stock Exchange during the period of 2002-2015areused. First, the volatility of exchange rate is estimated by the Generalized Autoregressive Conditional Heteroskedasticity (GARCH). The model is estimated by GMM and system GMM methods. The r...

A key problem in financial econometrics is the modeling, estimation and forecasting of conditional return volatility and correlation. Having accurate forecasting models for conditional volatility and correlation is important for accurate derivatives pricing, risk management and asset allocation decisions. It is well known that conditional volatility and correlation are highly predictable. An in...

Volatility as a phenomenon as well as a concept remains central to modern financial markets and academic research. The link between volatility and risk has been to some extent elusive, but stock market volatility is not necessarily a bad thing. In fact, fundamentally justified volatility can form the basis for efficient price discovery. In this context volatility dependence that implies predict...