Stochastic Volatility in Financial Markets

1. Front Matter

   Pages i-xv

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2. Introduction

   • Fabio Fornari, Antonio Mele

   Pages 1-30

3. Continuous Time Behavior of Non Linear Arch Models

   • Fabio Fornari, Antonio Mele

   Pages 31-55

4. Continuous Time Stochastic Volatility Option Pricing: Foundational Issues

   • Fabio Fornari, Antonio Mele

   Pages 57-80

5. Models of the Term Structure with Stochastic Volatility

   • Fabio Fornari, Antonio Mele

   Pages 81-97

6. Formulating, Solving and Estimating Models of the Term Structure Using Arch Models as Diffusion Approximations

   • Fabio Fornari, Antonio Mele

   Pages 99-128

7. Back Matter

   Pages 129-147

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Stochastic Volatility in Financial Markets presents advanced topics in financial econometrics and theoretical finance, and is divided into three main parts. The first part aims at documenting an empirical regularity of financial price changes: the occurrence of sudden and persistent changes of financial markets volatility. This phenomenon, technically termed `stochastic volatility', or `conditional heteroskedasticity', has been well known for at least 20 years; in this part, further, useful theoretical properties of conditionally heteroskedastic models are uncovered. The second part goes beyond the statistical aspects of stochastic volatility models: it constructs and uses new fully articulated, theoretically-sounded financial asset pricing models that allow for the presence of conditional heteroskedasticity. The third part shows how the inclusion of the statistical aspects of stochastic volatility in a rigorous economic scheme can be faced from an empirical standpoint.

• Finance
• asset pricing
• econometrics
• financial markets
• option pricing
• volatility

• Bank of Italy, Italy

  Fabio Fornari

• Université du Littoral, France

  Antonio Mele

• THEMA, Université de Paris X, France

  Antonio Mele

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