This paper extends the stochastic volatility with leverage model, where returns are correlated with volatility, by flexibly modeling the bivariate distribution of the return and volatility innovations nonparametrically. The novelty of the paper is in modeling the unknown distribution with an infinite ordered mixture of bivariate normals with mean zero, but whose mixture probabilities and covari...

Modeling financial volatility is an important part of empirical finance. This paper provides a literature review of the most relevant volatility models, with a particular focus on forecasting models. We firstly discuss the empirical foundations of different kinds of volatility. The paper, then, analyses the non-parametric measure of volatility, named realized variance, and its empirical applica...

We introduce a functional volatility process for modeling volatility trajectories for high frequency observations in financial markets and describe functional representations and data-based recovery of the process from repeated observations. A study of its asymptotic properties, as the frequency of observed trades increases, is complemented by simulations and an application to the analysis of i...

The article is devoted to the comparative analysis of software packages in financial time series modeling. The most common among economists packages R, Eviews and Gretl are considered. Volatility is often used as a rough approximation to measuring of overall risk financial instruments. Polish stock index WIG for the modeling of financial time series volatility was chosen. Econometric model of f...

In recent article, Farmer and Foley [3] claimed that the agent-based modeling may be a better way to help guide financial policies than traditional mathematical models. The authors argue that such models can accurately predict short periods ahead as long as the scenario remains almost the same, but fail in times of high volatility. Another real world problem that is rarely addressed in agent-ba...

This paper estimates a consumption-based, no-arbitrage model of the term structure of real interest rates. The model nests the standard long-run risk model which assumes constant market prices of risk. We find that the long-run consumption risk dominates the short-run and volatility risks and drives most of the movements of bond risk premiums. The risk premium for consumption volatility is nega...