An alternative to the classical mixedmodel with normal random effects is to use a Dirichlet process to model the random effects. Such models have proven useful in practice, and we have observed a noticeable variance reduction, in the estimation of the fixed effects, when the Dirichlet process is used instead of the normal. In this paper we formalize this notion, and give a theoretical justifica...

It is widely recognised that delta-hedged positions in options can be used to trade volatility. To facilitate volatility trading for their clients, several institutions routinely offer variance swaps. A variance swap is a financial contract that upon expiry pays the difference between a standard historical estimate of daily return variance and a fixed rate determined at inception. As in any swa...