Search results for "volatility"
showing 10 items of 245 documents
International evidence on alternative models of the term structure of volatilities
2009
The term structure of instantaneous volatilities (TSV) of forward rates for different monetary areas (euro, U.S. dollar and British pound) is examined using daily data from at-the-money cap markets. During the sample period (two and a half years), the TSV experienced severe changes both in level and shape. Two new functional forms of the instantaneous volatility of forward rates are proposed and tested within the LIBOR Market Model framework. Two other alternatives are calibrated and used as benchmarks to test the accuracy of the new models. The two new models provide more flexibility to adequately calibrate the observed cap prices, although this improved accuracy in replicating cap prices …
The timeline of trading frictions in the European carbon market
2012
We evaluate the quality of prices of EU-ETS, the most active European derivative market for greenhouse gas emissions allowances (EUAs). So far, this market has had two phases, a trial phase (from 2005 to 2007) and a commitment phase (from 2008 to 2012). The true value of a trial-phase EUA at the beginning of 2008 was inevitably zero because it could not be used in the commitment phase to cover emission targets. However, continued rumors of over-allocation of EUAs led to an early collapse of the market by May 2007. We study whether this market breakdown and the subsequent outbreak of the international financial crisis had a persistent effect on the quality of the commitment phase. We provide…
Asymmetric covariance in spot-futures markets
2003
This article studies how the spot-futures conditional covariance matrix responds to positive and negative innovations. The main results of the article are achieved by obtaining the Volatility Impulse Response Function (VIRF) for asymmetric multivariate GARCH structures, extending Lin (1997) findings for symmetric GARCH models. This theoretical result is general and can be applied to analyze covariance dynamics in any financial system. After testing how multivariate GARCH models clean up volatility asymmetries, the Asymmetric VIRF is computed for the Spanish stock index IBEX-35 and its futures contract. The empirical results indicate that the spot-futures variance system is more sensitive to…
Price and volatility dynamics between electricity and fuel costs: Some evidence for Spain
2012
Abstract The purpose of this study is to investigate the causal linkages between the Spanish electricity, Brent crude oil and Zeebrugge (Belgium) natural gas 1-month-ahead forward prices. Following Lutkepohl et al. (2004), we control for the presence of a structural change in the series and then we use the Johansen cointegration test and a vector error correction model (VECM) to embrace the analysis. Additionally, a multivariate generalized autoregressive conditional heteroskedastic (GARCH) model is applied to explore volatility interactions between the three markets involved in the study. Our findings reveal that Brent crude oil and Zeebrugge natural gas forward prices play a prominent rol…
Pricing of forwards and other derivatives in cointegrated commodity markets
2015
Abstract We analyze cointegration in commodity markets, and propose a parametric class of pricing measures which preserves cointegration for forward prices with fixed time to maturity. We present explicit expressions for the term structure of volatility and correlation in the context of our spot price models based on continuous-time autoregressive moving average dynamics for the stationary components. The term structures have many interesting shapes, and we provide some empirical evidence from refined oil future prices at NYMEX defending our modeling idea. Motivated from these results, we present a cointegrated forward price dynamics using the Heath–Jarrow–Morton approach. In this setting, …
Model Based Monte Carlo Pricing of Energy and Temperature Quanto Options
2010
Weather derivatives have become very popular tools in weather risk management in recent years. One of the elements supporting their diffusion has been the increase in volatility observed on many energy markets. Among the several available contracts, Quanto options are now becoming very popular for a simple reason: they take into account the strong correlation between energy consumption and certain weather conditions, so enabling price and weather risk to be controlled at the same time. These products are more efficient and, in many cases, significantly cheaper than simpler plain vanilla options. Unfortunately, the specific features of energy and weather time series do not enable the use of …
Financial Integration and Fiscal Policy
2011
The aim of this paper is to assess the impact of financial integration on fiscal policy. Using an unbalanced panel of 31 OECD countries from 1970 to 2009, the paper shows that financial integration has significant disciplinary effects by reducing fiscal deficits and (discretionary) spending volatility. In addition, we find that financial integration affects the composition of government debt and enhances risk-sharing by increasing the share of foreign debt to the total. The results are robust to both de jure and de facto measures of financial integration, different measures of budget balance, and different estimation strategies.
All that glitters is not gold. The rise of gaming in the COVID-19 pandemic
2020
Abstract The COVID-19 pandemic has led to an unprecedented situation, with incalculable health, social, and economic consequences. At the start of the outbreak, the financial markets collapsed, although not all sectors suffered equally. The gaming and eSports industry is one of those that has suffered the least from the fall in the markets. Millions of people locked up at home, bored, stressed, and anguished, gave gaming and eSports companies growing prominence throughout the first half of 2020. This prominence has elicited interest in analyzing which variables can influence the returns in an industry in better financial health than many others. Using a logit–probit model, this research aim…
Region vs. Industry Effects and Volatility Transmission
2006
This article presents an analysis of the relative importance of region versus industry effects in stock returns, as opposed to the extensively analyzed country versus industry effects. The sample includes the period after the bursting of the technology bubble. Moreover, volatility transmission patterns are analyzed within an industry across regions to assess whether the same international links found in aggregate stock market indices exist at the industry level. The results confirm the dominance of region effects over industry effects, except during the bubble period. The results of the volatility transmission analysis suggest that the importance of spillovers depends on the industry.
A Study of Seasonality on the SAFEX Wheat Market
2015
This paper examines seasonality in returns and volatilities in the South African Futures Exchange (SAFEX) wheat futures contract in order to seek market inefficiencies that can be exploited for financial gain. Non-parametric and parametric-based techniques are used to study sample regimes before and after the peak in wheat prices that occurred during the global economic crisis in 2008. Findings of the study indicate that wheat returns on Mondays and Kansas City Board of Trade (KCBT) holidays are significant and positive while Tuesday returns are negative and significant. These seasonal patterns occur largely in the second sample of the wheat dataset. Furthermore, it is observed that volatil…