8 Works

Good Volatility, Bad Volatility and Option Pricing

Bruno Feunou & Cédric Okou
Advances in variance analysis permit the splitting of the total quadratic variation of a jump diffusion process into upside and downside components. Recent studies establish that this decomposition enhances volatility predictions, and highlight the upside/downside variance spread as a driver of the asymmetry in stock price distributions. To appraise the economic gain of this decomposition, we design a new and flexible option pricing model in which the underlying asset price exhibits distinct upside and downside...

Downside Variance Risk Premium

Bruno Feunou, Mohammad R. Jahan-Parvar & Cédric Okou
We decompose the variance risk premium into upside and downside variance risk premia. These components reflect market compensation for changes in good and bad uncertainties. Their difference is a measure of the skewness risk premium (SRP), which captures asymmetric views on favorable versus undesirable risks. Empirically, we establish that the downside variance risk premium (DVRP) is the main component of the variance risk premium. We find a positive and significant link between the DVRP and...

Risk-Neutral Moment-Based Estimation of Affine Option Pricing Models

Bruno Feunou & Cédric Okou
This paper provides a novel methodology for estimating option pricing models based on risk-neutral moments. We synthesize the distribution extracted from a panel of option prices and exploit linear relationships between risk-neutral cumulants and latent factors within the continuous time affine stochastic volatility framework. We find that fitting the Andersen, Fusari, and Todorov (2015b) option valuation model to risk-neutral moments captures the bulk of the information in option prices. Our estimation strategy is effective, easy...

Evaluating the Quarterly Projection Model: A Preliminary Investigation

Robert Amano, Kim McPhail, Hope Pioro & Andrew Rennison
This paper summarizes the results of recent research evaluating the Bank of Canada's Quarterly Projection Model (QPM). Because QPM consists of a steady-state model and a dynamic model, our evaluation work consists of two parts. The first part assesses the calibration of QPM's core steady-state using a variant of Canova's (1994, 1995) Monte Carlo approach. Using parameter values drawn from prior distributions, we assess QPM's sensitivity to various plausible parameter values. Our approach differs somewhat...

Price-Level Targeting and Stabilization Policy: A Review

Steve Ambler
The author surveys recent articles on the costs and benefits of price-level targeting versus inflation targeting, focusing on the benefits and costs of price-level targeting as a tool for stabilization policy. He reviews papers that examine how price-level targeting affects the short-run trade-off between output and inflation variability by influencing expectations of future inflation. The author looks at the implications of this argument for assigning an objective based on price-level targeting to a central bank...

Technology Shocks and Business Cycles: The Role of Processing Stages and Nominal Rigidities

Louis Phaneuf & Nooman Rebei
This paper develops and estimates a dynamic general equilibrium model that realistically accounts for an input-output linkage between firms operating at different stages of processing. Firms face technological change which is specific to their processing stage and charge new prices according to stage-specific Calvo-probabilities. Only a fixed fraction of households have an opportunity to adjust nominal wages to new information each period. Intermediate-stage technology shocks account for the bulk of output variability at business cycle...

Astronomical climate forcing of ~2.5 Ga banded iron formations

Margriet L. Lantink, Joshua H. F. L. Davies, Rick Hennekam, Frederik J. Hilgen, David McB. Martin, Paul R. D. Mason, Gert-Jan Reichart & Urs Schaltegger
Utrecht University, The Netherlands (1); Université du Québec à Montréal, Canada (2); University of Geneva, Switzerland (3); Royal Netherlands Institute for Sea Research, and Utrecht University, The Netherlands (4; Geological Survey of Western Australia (5)

Large-scale banded iron formations (BIFs) were deposited during Neoarchean to early Paleoproterozoic and have been mainly linked to hydrothermal plume activity and the rise of oxygen in the ocean and atmosphere. However, the potential influence of astronomical “Milankovitch”...

A Comparison of Alternative Methodologies for Estimating Potential Output and the Output Gap

Chantal Dupasquier, Alain Guay & Pierre St-Amant
In this paper, the authors survey some of the recent techniques proposed in the literature to measure the trend component of output or potential output. Given the reported shortcomings of mechanical filters and univariate approaches to estimate potential output, the paper focusses on three simple multivariate methodologies: the multivariate Beveridge-Nelson methodology (MBN), Cochrane's methodology (CO), and the structural VAR methodology with long-run restrictions applied to output (LRRO). The foundation of these methodologies is first discussed...

Registration Year

  • 2021
    8

Resource Types

  • Text
    8

Affiliations

  • University of Quebec at Montreal
    8
  • Bank of Canada
    6
  • Federal Reserve Board of Governors
    1
  • Royal Netherlands Institute for Sea Research
    1
  • University of Geneva
    1
  • Utrecht University
    1
  • Geological Survey of Western Australia
    1