Empirical Asset Pricing with Nonlinear Risk Premia
提出一个联合建模S&P 100指数和VXO隐含波动率指数的新模型，其非线性方差过程能同时处理极端持久性和强均值回归，在多个市场崩盘期间（包括次贷危机）的样本外预测中表现优于标准线性模型。
We introduce a new model for the joint dynamics of the S&P 100 index and the VXO implied volatility index. The nonlinear specification of the variance process is designed to simultaneously accommodate extreme persistence and strong mean reversion. This grants superior forecasting power over the standard (linear) specifications for implied variance forecasting. We obtain statistically significant predictions in an out-of-sample exercise spanning several market crashes starting 1986 and including the recent subprime crisis. The model specification is possible through a simple continuous-time no-arbitrage asset pricing framework that combines semi-analytic pricing with a nonlinear specification for the market price of risk.