National Bureau of Economic Research

About: National Bureau of Economic Research is a nonprofit organization based out in Cambridge, Massachusetts, United States. It is known for research contribution in the topics: Monetary policy & Population. The organization has 2626 authors who have published 34177 publications receiving 2818124 citations. The organization is also known as: NBER & The National Bureau of Economic Research.

Implied Volatility Functions: Empirical Tests

Abstract: Black and Scholes (1973) implied volatilities tend to be systematically related to the option’s exercise price and time to expiration. Derman and Kani (1994), Dupire (1994), and Rubinstein (1994) attribute this behaviour to the fact that the Black/Scholes constant volatility assumption is violated in practice. These authors hypothesize that the volatility of the underlying asset’s return is a deterministic function of the asset price and time, and develop the deterministic volatility function (DVF) option valuation model, which has the potential of fitting the observed cross-section of option prices exactly. Using a sample of Standard and Poors index of 500 companies (S&P 500) options during the period June 1988 through December 1993, we evaluate the economic significance of the implied deterministic volatility function by examining the predictive and hedging performance of the DVF option valuation model.

Medium Term Business Cycles

Abstract: Over the postwar, the U.S., Europe and Japan have experienced what may be thought of as medium frequency oscillations between persistent periods of robust growth and persistent periods of relative stagnation. These medium frequency movements, further, appear to bear some relation to the high frequency volatility of output. That is, periods of stagnation are often associated with significant recessions, while persistent booms typically are either free of recessions or are interrupted only by very modest downturns. In this paper we explore the idea of medium term cycles, which we define as reflecting the sum of the high and medium frequency variation in the data. We develop a methodology for identifying these kinds of fluctuations and then show that a number of important macroeconomic time series exhibit significant medium term cycles. The cycles feature strong procyclical movements in both disembodied and embodied technological change, research & development, and the efficiency of resource utilization. We then develop a model to explain the medium term cycle that features both disembodied and embodied endogenous technological change, along with countercyclical markups and variable factor utilization. The model is able to generate medium term fluctuations in output, technological change, and resource utilization that resemble the data, with a non-technological shock as the exogenous disturbance. In particular, the model offers a unified approach to explaining both high and medium frequency variation in aggregate business activity.

Autoregressive conditional skewness

Abstract: We present a new methodology for estimating time-varying conditional skewness. Our model allows for changing means and variances, uses a maximum likelihood framework with instruments, and assumes a non-central t distribution. We apply this method to daily, weekly, and monthly stock returns, and find that conditional skewness is important. In particular, we show that the evidence of asymmetric variance is consistent with conditional skewness. Inclusion of conditional skewness also impacts the persistence in conditional variance.