Torben G. Andersen

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Using high-frequency data on deutschemark and yen returns against the dollar, we construct model-free estimates of daily exchange rate volatility and correlation that cover an entire decade. Our estimates, termed realized volatilities and correlations, are not only model-free, but also approximately free of measurement error under general conditions, which(More)
We show that the compensation for rare events accounts for a large fraction of the equity and variance risk premia in the S&P 500 market index. The probability of rare events vary significantly over time, increasing in periods of high market volatility, but the risk premium for tail events cannot solely be explained by the level of the volatility. Our(More)
We shed light on the characteristics of high-frequency asset return and volatility processes and their implications for daily return distributions. We document that the standard jump-diffusion setting readily accommodates the main features of equity index returns, including stochastic volatility, outlier behavior and a strong asymmetry between return and(More)
Current practice largely follows restrictive approaches to market risk measurement , such as historical simulation or RiskMetrics. In contrast, we propose flexible methods that exploit recent developments in financial econometrics and are likely to produce more accurate risk assessments, treating both portfolio-level and asset-level analysis. Asset-level(More)
We develop a new parametric estimation procedure for option panels observed with error. We exploit asymptotic approximations assuming an ever increasing set of option prices in the mon-eyness (cross-sectional) dimension, but with a fixed time span. We develop consistent estimators for the parameters and the dynamic realization of the state vector governing(More)
JEL classification: C51 C52 G12 Keywords: Option pricing Risk premia Jumps Stochastic volatility Return predictability Risk aversion Extreme events a b s t r a c t We study the dynamic relation between market risks and risk premia using time series of index option surfaces. We find that priced left tail risk cannot be spanned by market volatility (and its(More)
We develop econometric tools for studying jump dependence of two processes from high-frequency observations on a fixed time interval. In this context, only segments of data around a few outlying observations are informative for the inference. We derive an asymptotically valid test for stability of a linear jump relation over regions of the jump size domain.(More)
The volatility of a nancial asset is the variance per unit time of the logarithm of the price of the asset. Volatility has a key role to play in the determination of risk and in the valuation of options and other derivative securities. The widespread Black-Scholes model for asset prices assumes constant volatility. The purpose of this chapter is to review(More)
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