In the perspective of oil-importers, this paper considers an extension of the Value at Risk approach incorporated with timevarying conditional volatility model to trace the actual dynamic risk of regional oil-importing portfolio caused by the country risk volatility. With an application to oil economies in the Former Soviet Union (FSU) region, empirical results show that the country portfolio r...

We develop a model for pricing expropriation risk in natural resource projects, in particular an oil field. The government is viewed as holding an American-style option to expropriate the oil field, but facing the following three possible expropriation costs: A state-run company may produce oil less cost-efficiently than a private firm, the government may have to pay a compensation to the firm,...

Volatility is a standard measure of financial vulnerability and it plays vital role in analyzing the risk securities market. It traditionally measured using deviation, which indicates how price stock clustered around mean or moving average. The intent study to analyse volatility clustering six select sectoral indices such as S&P BSE AUTO (Automobile), BANKEX (Bank) , FMCG (Fast Moving Consu...

Forecasting volatility is important to financial asset pricing because a more accurate forecast will allow for a more accurate model to price financial assets. Currently the VIX is used as a measure of volatility in the market as a whole, but a major issue with this is that it is calculated based on manually traded options on the S&P 500. Another method of forecasting volatility is that of solv...

We see that the price of an european call option in a stochastic volatility framework can be decomposed in the sum of four terms, which identify the main features of the market that affect to option prices: the expected future volatility, the correlation between the volatility and the noise driving the stock prices, the market price of volatility risk and the difference of the expected future v...

We consider a simple uncertain-volatility model for the asset price underlying a given option market. The asset price volatility is assumed to follow a discrete (actually finite) Markov chain σ, which changes value on some fixed future times. The volatility chain is independent of the Brownian motion governing the future evolution of the asset. Modeling the volatility evolution in this way is e...

We study the eeect of stochastic volatility on option prices. In the fast-mean reversion model for stochastic volatility of 5], we show that there is a full asymptotic expansion for the option price, centered at the Black-Scholes price. We show, however, that this price does not converge in a strong sense to Black-Scholes as the mean-reversion rate increases. We also introduce a general (possib...

Risk management is crucial for optimal portfolio management. One of the fastest growing areas in empirical finance is the expansion of financial derivatives. The purpose of this special issue on “Risk Management and Financial Derivatives” is to highlight some areas in which novel econometric, financial econometric and empirical finance methods have contributed significantly to the analysis of r...

We examine how gasoline price volatility impacts consumers’ price elasticity of demand for gasoline. Results show that volatility in prices decreases consumer demand for gasoline in the intermediate run. We also find that consumers appear to be less elastic in response to changes in gasoline price when gasoline price volatility is medium or high, compared to when it is low. Moreover, we find th...

The level of price volatility should theoretically be confined to export parity price levels at the lower end and import parity price levels at the upper end of the price band, reflecting supply and demand conditions during surplus and deficit marketing seasons respectively. A greater gap between these export and import parity prices will reflect high marketing costs, often representing high tr...