Helder Palaro's home page - References

	Trend-following and momentum
	Volatility Arbitrage

Trend-following and Momentum References

• Brock, W., Lakonishok, J. and LeBaron, B. (1992) Simple technical trading rules and the stochastic properties of stock returns, Journal of Finance, 47 (5), 1731-1764.
• Jegadeesh, N. and Titman, S. (1993) Returns to buying winners and selling losers: Implications for stock market efficiency, Journal of Finance, 48 (1), 65-91.
• Silber, W. L. (1994) Technical trading: when it works and when it doesn't, Journal of Derivatives, 1 (3), 39-44.
• Pesaran, M. and Timmermann, A. (1995) Predictability of stock returns: Robustness and economic significance, Journal of Finance, 50 (4), 1201-1228.
• Neely, C., Weller, P. and Dittmar, R. (1997) Is technical analysis in the foreign exchange market profitable? A genetic programming approach, Journal of Financial and Quantitative Analysis, 32, 405-426.
• Rouwenhorst, K. (1998) International momentum strategies, Journal of Finance, 53 (1), 267-284.
• Sullivan, R., Timmermann, A. and White, H. (1999) Data-snooping, technical trading rule performance, and the bootstrap, Journal of Finance, 54 (5), 1647-1691.
• Lee, C. And Swaminathan, B. (2000) Price momentum and trading volume, Journal of Finance, 55, 2017-2069.
• Lo, A., Mamaysky, H. and Wang, J. (2000) Foundations of technical analysis: Computational algorithms, statistical inference, and empirical implementation, Journal of Finance, 55 (4), 1705-1770.
• Fung, W. And Hiseh, D.A. (2001) The risk in hedge fund strategies: Theory and evidence from trend followers., Review of Financial Studies, 10, 275-302.
• Jegadeesh, N. and Titman, S. (2001) Profitability of momentum strategies: An evaluation of alternative explanations, Journal of Finance, 56, 699-720.
• Frazzini, A. (2004) The disposition effect and the underreaction to news, Journal of Finance, 61 (4), 2017-2046.
• Griffin, J., Ji, X. And Martin, S. (2005) Global momentum strategies: A portfolio perspective, Journal of Portfolio Management, 31 (2), 23-39.
• Bhojraj, S. and Swaminathan, B. (2006) Macromomentum: Returns predictability in international equity indices, Journal of Business, 79 (1), 429-451.
• Erb, C. and Harvey, C. (2006) The tactical and strategic value of commodity futures, Financial Analysts Journal, 62 (2), 69-97.
• Faber, M. (2007) A quantitative approach to tactical asset allocation, Journal of Wealth Managament, 9 (4), 69-79.
• Miffre, J. and Rallis, G. (2007) Momentum strategies in commodity futures markets, Journal of Banking and Finance, 31, 1863-1886.
• Pukthuanthong, K., Lavish, R. And Thomas, L. (2007) Do foreign exchange markets still trend, Journal of Portfolio Management, 34, 114-118.
• Blitz, D. and Van Vliet, P. (2008) Global tactical cross-asset allocation: Applying value and momentum across asset classes, Journal of Portfolio Management, 35 (1), 23-38.
• Ostgaard, S. (2008) On the nature and origins of trend following, Last Atlantis Capital Management.
• Fuertes, A., Miffre, J. and Rallis, G. (2010) Tactical allocation in commodity futures markets: Combining momentum and term structure signals, Journal of Banking and Finance, 34 (10), 2530-2548.
• Hurst, B., Ooi, Y. and Pedersen, L. (2010) Understanding managed futures, AQR working paper, Winter.
• Szakmary, A., Shen, Q. and Sharma, S. (2010) Trend-following trading strategies in commodity futures: A re-examination, Journal of Banking and Finance, 34 (2), 409-426.
• Antonacci, G. (2012) Risk premia harvesting through dual momentum, Portfolio Management Associates
• Gorton, G., Hayashi, F. and Rouwenhorst, K. (2012) The fundamentals of commodity futures returns, Yale ICF working paper, 07-08.
• Menkhoff, L., Sarno, L., Scheming, M and Schrimpf, A. (2012) Currency momentum strategies, Journal of Financial Economics, 106, 620-684.
• Moskowitz, T., Ooi, Y. and Pedersen, H. (2012) Time series momentum, Journal of Financial Economics, 104(2), 228-250.
• Asness, C., Moskowitz, T. and Pedersen, L. (2013) Value and momentum everywhere, Journal of Finance, 68 (3), 929-985
• Baltas, N. And Kosowski, R. (2013) Momentum Strategies in Futures Markets and Trend-following Funds, Paris December 2012 Finance Meeting EUROFIDAI-AFFI Paper
• Hurst, B., Ooi, Y. and Pedersen, L. (2013) Demystifying managed futures, Journal of Investment Management, 11 (3), 42-58.
• Clare, A., Seaton, J., Smith, P. and Thomas, S. (2014) Trend following, risk parity and momentum in commodity futures, International Review of Financial Analysis, 31, 1-12.
• Lemperiere, Y., Deremble, C., Seager, P., Potters, M. and Bouchaud, J. (2014) Two centuries of trend following, Journal of Investment Strategies, 3 (3), 41-61.
• Antonacci, G. (2015) Absolute Momentum: A Simple Rule-Based Strategy and Universal Trend-Following Overlay, Working paper, Portfolio Management Associates.
• Barroso, P. and Santa-Clara, P. (2015) Momentum has its moments, Journal of Financial Economics, 116, 111-120.
• Baz, J., Granger, N., Harvey, C., Le Roux, N. and Rattray, S. (2015) Dissecting investments strategies in the cross section and time series, Working paper, Man Group.
• Daniel, K. and Moskowitz, T. (2016) Momentum crashes, Journal of Financial Economics, 122 (2), 221-247.
• Geczy, C. and Samonov, M. (2016) Two Centuries of Price Return Momentum, Financial Analysts Journal, 72 (5).
• Kim, A.Y., Tse, Y. and Wald, J.K. (2016) Time series momentum and volatility scaling, Journal of Financial Markets, 30, 103-124.
• Levine, A., Pedersen, L.H. (2016) Which trend is your friend?, Financial Analyst Journal, 72, 51-66.
• Goyal, A. And Jegadeesh, N. (2017) Cross-sectional and time-series tests of return predictability: What is the difference?, Review of Financial Studies, 31, 1748-1824.
• Hurst, B., Ooi, Y. and Pedersen, L. (2017) A century of evidence on trend-following investing, Journal of Portfolio Management, 44, 15-29.
• Moreira, A. and Muir, T. (2017) Volatility-managed portfolios, Journal of Finance, 72, 1611-1644.
• Garg, A., Goulding, C.L., Harvey, C.R and Mazzoleni, M.G. (2019) Momentum turning points, Working paper.
• Gupta, T. And Kelly, B.T. (2019) Factor momentum everywhere, Journal of Portfolio Management, 45, 13-36.
• Babu, A., Hoffmann, B., Levine, A., Ooi, Y.H., Schroeder, S. and Stamelos, E. (2020) You can't always trend when you want, Journal of Portfolio Management, 46, 1-17.
• Babu, A., Levine, A., Ooi, Y.H., Pedersen, L.H. and Stamelos, E. (2020) Trends everywhere, Journal of Investment Management, 18.
• Garg, A., Goulding, C.L., Harvey, C.R and Mazzoleni, M.G. (2020) Breaking bad trends, Working paper.
• Huang, D., Li, J. Wang, L. and Zhou, G. (2020) Time-series momentum: Is it there?, Journal of Financial Economics, 135 (3), 774-794.

Volatility Arbitrage References

1. Seminal work

• Black, F. and Scholes, M. (1973) The pricing of options and corporate liabilities, Journal of Political Economy, 81, 637-639.
• Merton, R. (1973) The theory of rational option pricing, The Bell Journal of Economics and Management Science, 4 (1), 141-183.
• Black, F. (1976) Studies of Stock Price Volatility Changes, Proceedings of the 1976 meetings of the American Statistical Association, 177-181.
• Cox, J., Ross, S. and Rubinstein, M. (1979) Option pricing: a simplified approach, Journal of Financial Economics, 7, 229-263.
• Engle, R. (1982) Autoregressive conditional heteroskedasticity with estimates of the variance of U.K. inflation, Econometrica, 50, 987-1008.
• Heston, S. (1993) A Closed-form solution for options with stochastic volatility, with applications to bond and currency options, Review of Financial Studies, 6, 323-343.

2. Volatility stylized facts

2.1 Volatility clustering and mean reversion

• Mandelbrot, B. (1963) The variation of certain speculative prices, Journal of Business, 36 (4), 394-419.
• Engle, R. and Patton, A. (2001) What good is a volatility model?, Quantitative Finance, 1 (2), 237-245.

2.2 Volatility risk premium

• Day, T. and Lewis, C. (1992) Stock market volatility and the information content of stock index options, Journal of Econometrics, 52, 267-287.
• Canina, L. and Figlewski, S. (1993) The informational content of implied volatility, Review of Financial Studies, 6, 659-681.
• Lamoreux, C. and Lastrapes, W. (1993) Forecasting return variance: toward an understanding of stochastic implied volatilities, Review of Financial Studies, 6, 293-326.
• Fleming, J., Ostdiek, B. and Whaley, R.E. (1995) Predicting stock market volatility: a new measure, Journal of Future Markets, 15, 293-326.
• Jackwerth, J., and Rubinstein, M. (1996) Recovering probability distributions from options prices, Journal of Finance, 51, 1611-1631.
• Fleming, J. (1998) The quality of market volatility forecasts implied by S&P 100 index option prices, Journal of Empirical Finance, 5, 317-345.
• Christensen, B. and Prabhala, N. (1998) The relation between implied and realized volatility, Journal of Financial Economics, 50, 125-150.
• Pan, J. (2002) The jump-risk premia implicit in options: evidence from an integrand time-series study, Journal of Financial Economics, 63, 3-50.
• Simon, D. (2002) Implied volatility forecasts in the grains complex, Journal of Futures Markets, 22 (10), 959-981.
• Bates, D. (2003) Empirical option pricing: a retrospection, Journal of Econometrics, 116, 387-404.
• Poon, S. and Granger, C. (2003) Forecasting volatility in financial markets: A Review, Journal of Economic Literature, 41 (2), 478-539.
• Manfredo, M. and Sanders, D. (2004) The Forecasting performance of implied volatility from live cattle options contracts: implications for agribusiness risk management, Agribusiness, 20 (2), 217-230.
• Doran, J. and Ronn, E. (2005) The bias in Black-Scholes/Black implied volatility: An analysis of equity and energy markets, Review of Derivative Research, 8 (3), 177-198.
• Low, B. and Zhang, S. (2005) The volatility risk premium embedded in currency options, Journal of Financial and Quantitative Analysis, 40 (4), 803-832.
• Chernov, M. (2007) On the role of risk premia in volatility forecasting, Journal of Business and Economic Statistics, 25 (4), 411-426.
• Driessen, J. and Maenhout, P. (2007) An empirical portfolio perspective on option pricing anomalies, Review of Finance, 11 (4), 561-603.
• Egelkraut, T., Garcia, P. and Sherrick, J. (2007) The term structure of implied forward volatility: recovery and informational content in the corn options market, American Journal of Agricultural Economics, 89, 1-11.
• McKenzie, A., Thomsen, M. and Phelan, J. (2007) How do you straddle hogs and pigs? Ask the Greeks, Applied Financial Economics, 17 (7), 511-520.
• Fornari, F. (2008) Assessing the compensation for volatility risk implicit in interest rate derivatives, Working paper 859, European Central Bank.
• Bollerslev, T., Tauchen, G. and Zhou, H. (2009) Expected stock returns and variance risk premia, Review of Financial Studies, 22, 4463-4492.
• Broadie, M., Chernov, M. and Johannes, M. (2009) Understanding index option returns, Review of Financial Studies, 22 (11), 4493-4592.
• Carr, P. and Wu, L. (2009) Variance risk premiums, Review of Financial Studies, 22 (3), 1311-1341.
• Garland, N., Pedersen, L. and Poteshman, A. (2009) Demand-based option pricing, Review of Financial Studies, 22 (10), 4259-4299.
• Todorov, V. (2010) Variance risk premium dynamics: the role of jumps, Review of Financial Studies, 23, 345-383.
• Trolle, A., Schwartz, E. (2010) Variance risk premia in energy commodities, Journal of Derivatives, 17 (3), 15-32.
• Bollerslev, T., Gibson, M. and Zhou, H. (2011) Dynamic estimation of volatility risk premia and investor risk aversion from option-implied and realized volatilities, Journal of Econometrics, 160, 235-245.
• Brittain, L., Garcia, P. and Irwin, S. (2011) Live and feeder cattle options markets: return, risk and volatility forecasting, Journal of Agricultural and Resource Economics, 36 (1), 28-47.
• Mueller, P., Vedolin, A. and Choi, H. (2012) Bond variance risk premia, Working paper, London School of Economics.
• Wang, Z., Fausti, S. and Qasmi, B. (2012) Variance risk premiums and predictive power of alternative forward variances in the corn market, Journal of Futures Markets, 32 (6), 587-608.
• Buraschi, A., Trojani, F. and Vedolin, A. (2014) When uncertainty blows in the orchard comovement and equilibrium volatility risk premia, Journal of Finance, 69, 101-137.
• Kelly, B., Pastor, L. and Veronesi, P. (2016) The Pricing of Short-Term Market Risk: Evidence from Weekly Options, Journal of Finance, 71, 2417-2480.

2.3 Leverage effect

• Christie, A. (1982) The stochastic behavior of common stock variances: Value, leverage and interest rate effects, Journal of Financial Economics, 3, 407-432.
• Schwert, W. (1989) Why does stock market volatility change over time?, Journal of Finance, 44, 1115-1153.
• Glosten, L., Jagannathan, R. and Runkle, D. (1993) On the relation between the expected value and the volatility of the nominal excess returns on stocks, Journal of Finance, 48, 1179-1801.
• Braun, P., Nelson, D. and Sunier, A. (1995) Good News, bad News, volatility and betas, Journal of Finance, 50, 1575-1603.
• Figlewski, S. and Wang, X. (2000) Is the "leverage effect" a leverage Effect?, Working paper FIN-00-037, New York University.
• Yu, J. (2005) On leverage in a stochastic volatility model, Journal of Econometrics, 127, 165-178.
• Bandi, F. and Reno, R. (2012) Time-varying leverage effects, Journal of Econometrics, 169 (1), 94-113.
• Yu, J. (2012) A semiparametric stochastic volatility model, Journal of Econometrics, 167 (2), 473-482.

2.4 Volatility smile and implied probability distribution

• Rubinstein, M. (1994) Implied binomial trees, Journal of Finance, 49, 771-818.
• Derman, E. and Kani, I. (1994) Riding on a smile, Risk, 7, 32-39.
• Dupire, B. (1994) Pricing with a smile, Risk, 7, 18-20.
• Derman, E., Kani, I. and Chriss, N. (1996) Implied trinomial trees of the volatility smile, Journal of Derivatives, 3, 7-22.
• Jackwerth, J., and Rubinstein, M. (1996) Recovering probability distributions from options prices, Journal of Finance, 51, 1611-1631.
• Das, S. and Sundaram, R. (1999) Of smiles and smirks: a term-structure perspective, Journal of Financial and Quantitative Analysis, 34, 211-239.
• Skiadopoulos, G., Hodges, S. and Clewlow, L. (1999) The Dynamics of the S&P500 implied volatility surface, Review of Derivatives Research, 3 (1), 263-282.
• Britten-Jones, M. and Neuberger, A. (2000) Option prices, implied price processes, and stochastic volatility, Journal of Finance, 55 (2), 839-866.
• Tompkins, R. (2001) Stock index future markets: Stochastic volatility models and smiles, The Journal of Futures Markets, 21, 43-78.
• Alexander, C. (2001) Principles of skew, Risk, 14 (1), 29-32.
• Coleman, T., Kim, Y., Li, Y. and Verma, A. (2001) Dynamic hedging with a deterministic local volatility function, Journal of Risk, 4 (1), 63-89.
• Ederington, L. and Guan, W. (2002) Why are those options smiling?, Journal of Derivatives, 10 (2), 9-34.
• Jarrow, R., Li, H. and Zhao, F. (2007) Interest rate caps 'smile' too! But can the LIBOR market models capture it?, Journal of Finance, 62 (1), 345-382.
• Deuskar, P., Gupta, A. and Subrahmanyam, M. (2008) The economic determinants of interest rate option smiles, Journal of Banking and Finance, 32 (5), 714-728.
• Han, B. (2008) Investor sentiment and option prices, Review of Financial Studies, 21 (1), 387-414.
• Bedendo, M. and Hodges, S. (2009) The dynamics of the volatility skew: A Kalman filter approach, Journal of Banking Finance, 33 (6), 1156-1165.
• Ederington, L. and Guan, W. (2013) The cross-sectional relation between conditional heteroskedasticity, the implied volatility smile, and the variance risk premium, Journal of Banking and Finance, 37 (9), 3388-3400.
• Byun, S. and Kim, D. (2016) Gambling preference and individual equity option returns, Journal of Financial Economics, 122 (1), 155-174.

3. Forecasting volatility

3.1 ARCH/GARCH and time series models

• Engle, R. (1982) Autoregressive conditional heteroskedasticity with estimates of the variance of U.K. inflation, Econometrica, 50, 987-1008.
• Bollerslev, T. (1986) Generalized autoregressive conditional heteroskedasticity, Journal of Econometrics, 31, 307-327.
• Nelson, D. (1991) Conditional heteroskedasticity in asset returns: a new approach, Econometrica, 59, 347-370.
• Engle, R. and Ng, V. (1993) Measuring and testing the impact of news on volatility, Journal of Finance, 48, 1749-1778.
• Glosten, L., Jagannathan, R. and Runkle, D. (1993) On the relation between the expected value and the volatility of the nominal excess returns on stocks, Journal of Finance, 48, 1179-1801.
• Engle, R. (2001) GARCH 101: The use of ARCH/GARCH models in applied econometrics, Journal of Economic Perspectives, 15, 157-168.
• Engle, R. (2002) Dynamic conditional correlation - a simple class of multivariate GARCH models, Journal of Business and Economic Statistics, 20, 339-350.
• Engle, R. and Gallo, G. (2006) A multiple indicators model for volatility using intra-daily data, Journal of Econometrics, 131, 3-27.
• Hansen, P., Huang, Z. and Shek, H. (2011) Dynamic conditional correlation - a simple class of multivariate GARCH models, Journal of Applied Econometrics, 27 (6), 877-906.
• Dorion, C. (2016) Option valuation with macro-finance variables, Journal of Financial and Quantitative Analysis, 51 (4), 1359-1389.

3.2 Stochastic volatility models

• Hull, J. and White, A. (1987) The pricing of options on assets with stochastic volatilities, Journal of Finance, 42, 281-300.
• Johnson, H. and Shanno, D. (1987) Option pricing when the variance is changing, Journal of Financial and Quantitative Analysis, 22, 143-151.
• Wiggins, J. (1987) Option values under stochastic volatilities, Journal of Financial Economics, 19, 351-372.
• Heston, S. (1993) A closed-form solution for options with stochastic volatility, with applications to bond and currency options, Review of Financial Studies, 6, 323-343.
• Bates, D. (1996) Jumps and stochastic volatility: exchange rate processes implicit in Deutsche Mark options, Review of Financial Studies, 9, 69-107.
• Harvey, A. and Shephard, N. (1996) The estimation of an asymmetric stochastic volatility model for asset returns, Journal of Business and Economic Statistics, 14, 429-434.
• Bakshi, G., Cao, C. and Chen, Z. (1997) Empirical performance of alternative option pricing models, Journal of Finance, 52 (5), 2003-2049.
• Bates, D. (2000) Post-87 Crash Fears in S&P 500 Future Options, Journal of Econometrics, 94, 181-238.
• Duffie, D., Singleton, K. and Pan, J. (2000) Transform analysis and asset pricing for affine jump-diffusions, Econometrica, 68, 1343-1376.
• Heston, S., and Nandi, S. (2000) A closed-form GARCH option valuation model, Review of Financial Studies, 13 (3), 585-625.
• Barndorff-Nielsen, O. and Shephard, N. (2001) Non-gaussian Ornstein-Uhlenbeck-based models and some of their uses in financial economics, Journal of the Royal Statistical Society, Series B 64, 253-280.
• Hagan, P., Kumar, D., Lesniewski, A. and Woodward, D. (2002) Managing smile risk, Wilmott Magazine, 84-108.
• Eraker, B., Johannes, M. and Polson, N. (2003) The impact of jumps in volatility and returns, Journal of Finance, 58, 1269-1300.
• Gatheral, J. (2004) A parsimonious arbitrage-free implied volatility parametrisation with application to the valuation of volatility derivatives, Global Derivatives & Risk Management 2004, Madrid.
• Broadie, M., Chernov, M. and Johannes, M. (2007) Model specification and risk premia: evidence from futures options, Journal of Finance, 62 (3), 1453-1490.
• Santa-Clara, P. and Yan, S. (2010) Crashes, volatility, and the equity premium: lessons from S&P500 options, Review of Economics and Statistics, 92 (2), 435-451.
• Todorov, V. (2010) Variance risk premium dynamics: the role of jumps, Review of Financial Studies, 23, 345-383.
• Yu, J. (2012) A semiparametric stochastic volatility model, Journal of Econometrics, 167 (2), 473-482.
• Zhao, B. and Hodges, S. (2013) Parametric modelling of implied smile functions: a generalised SVI model, Review of Derivatives Research, 16 (1), 53-77.
• Audrino, F. and Fengler, M. (2015) Are classical option pricing models consistent with observed option second-order moments? Evidence from high-frequency data., Journal of Banking and Finance, 61, 46-63.
• Eraker, B. and Wang, J. (2015) A Non-Linear Dynamic Model of the Variance Risk Premium., Journal of Econometrics, 187 (2), 547-556.
• Bandi, F. and Reno, R. (2016) Price and volatility co-jumps, Journal of Financial Economics, 119 (1), 107-146.
• Carr, P. and Wu, L. (2016) Analyzing volatility risk and risk premium in option contracts: A new theory., Journal of Financial Economics, 120 (1), 1-20.
• Kiesel, R. and Rahe, F. (2017) Option pricing under time-varying risk-aversion with applications to risk forecasting, Journal of Banking and Finance, 76, 120-138.

3.3 Range-based estimators

• Garman, M. and Klass, M.(1980) On the estimation of security price volatilises from historical data, Journal of Business, 53, 67-68.
• Parkinson, M. (1980) The extreme value method for estimating the variance of the rate of return, Journal of Business, 53, 61-65.
• Rogers, L. and Satchell, S. (1991) Estimating variance from high, low, and closing prices, Annals of Applied Probability, 1, 504-512.
• Alizadeh, S., Brandt, M. and Diebold, F. (2002) Range-based estimation of stochastic volatility models, Journal of Finance, 57, 1047-1092.

3.4 Realized volatility models

• Zhou, B. (1996) High-frequency data and volatility in foreign-exchange rates,Journal of Business and Economic Statistics, 14, 45-52.
• Andersen, T., Bollerslev, T. (1998) Answering the skeptics: Yes, standard volatility models do provide accurate forecasts,International Economic Review, 39 (4), 885-905.
• Andersen, T., Bollerslev, T. (1998) Deutsche mark-dollar volatility: Intraday activity patterns, macroeconomic announcements, and longer run dependencies,Journal of Finance, 53 (1), 219-265.
• Andersen, T., Bollerslev, T., Diebold, F. and Labys, P. (2001) The distribution of exchange rate volatility, Journal of the American Statistical Association, 96, 42-55.
• Andersen, T., Bollerslev, T., Diebold, F. and Ebens, H. (2001) The distribution of realized stock return volatility, Journal of the American Statistical Association, 96, 42-55.
• Barndorff-Nielsen, O. and Shephard, N. (2002) Econometrics analysis of realised volatility and it use in estimating stochastic volatility models, Journal of the Royal Statistical Society, Series B 64, 253-280.
• Andersen, T., Bollerslev, T., Diebold, F. and Labys, P. (2003) Modeling and forecasting realised volatility, Econometrica, 71(2), 579-625.
• Barndorff-Nielsen, O. and Shephard, N. (2004) Econometric analysis of realised covariation: high frequency covariance, regression and correlation in financial economics, Econometrica, 72, 885-925.
• Ait-Sahalia, Y., Mykland, A. and Zhang, L. (2005) A Tale of two time scales: Determining integrated volatility with noisy high-frequency data,Journal of American Statistical Association, 100 (472), 1394-1411.
• Hansen, P. and Lunde, A. (2006) Realized variance and market microstructure noise, Journal of Business and Economic Statistics, 24 (2), 127-161.
• Zhang, L. (2006) Efficient estimation of stochastic volatility using noisy observations: a multi-scale approach, Bernoulli, 12, 1019-1043.
• Ghysels, E., Santa-Clara, P. and Valkanov, R. (2006) Predicting volatility: getting the most out of return data sampled at different frequencies, Journal of Econometrics, 131, 59-95.
• Andersen, T., Bollerslev, T. and Diebold, F. (2007) Roughing it up: Including jump components in the measurement, modelling, and forecasting of return volatility, Review of Economics and Statistics, 89, 701-720.
• Christensen, K. and Podolskij, M. (2007) Realized range-based estimation of integrated variance, Journal of Econometrics, 141, 323-349.
• Coen, A. and Racicot, F. (2007) Forecasting UHF financial data: Realized volatility versus UHF-GARCH models, International Advances in Economic Research, 13 (2), 243-244.
• Forsberg, L. and Ghysels, E. (2007) Why do absolute returns predict volatility so well, Journal of Financial Econometrics, 5, 31-67.
• Bandi, F. and Russell, J. (2008) Microstructure noise, realised variance, and optimal sampling, Review of Economic Studies, 75, 339-369.
• Barndorff-Nielsen, O., Hansen, P., Lunde, A. and Shephard, N. (2008) Designing realised kernels to measure the ex-post variation of equity prices in the presence of noise, Econometrica, 76, 1481-1536.
• Corsi, F. (2009) A simple approximate long-memory model of realized volatility, Journal of Financial Econometrics, 7 (2), 174-196.
• Shephard, N. and Sheppard, K. (2010) Realising the future: forecasting with high-frequency-based volatility (HEAVY) models, Journal of Applied Econometrics, 25, 197-231.
• Barndorff-Nielsen, O., Hansen, P., Lunde, A. and Shephard, N. (2011) Multivariate realised kernels: consistent positive semi-definite estimators of the covariation of equity prices with noise and non-synchronous trading, Journal of Econometrics, 162, 149-169.
• Patton, A. (2011) Data-based ranking of realised volatility estimators, Journal of Econometrics, 161(2), 284-303.
• Noureldin, D., Shephard, N. and Sheppard, K. (2012) Multivariate high-frequency-based volatility (HEAVY) models, Journal of Applied Econometrics, 27, 907-933.
• Patton, A. (2015) Does Anything Beat 5-Minute RV? A Comparison of Realized Measures Across Multiple Asset Classes, Journal of Econometrics, 187(1), 293-311.
• Bollerslev, T., Patton, A. and Quaedvlieg, R. (2016) Exploiting the errors: A simple approach for improved volatility forecasting, Journal of Econometrics, 192 (1), 1-18.

3.5 Option-implied forecast of realized volatility

• Canina, L. and Figlewski, S. (1993) The informational content of implied volatility, Review of Financial Studies, 6, 659-681.
• Amin, K. and Morton, A. (1994) Implied volatility functions in arbitrage-free term structure models, Journal of Financial Economics,35, 141-180.
• Jorion, P. (1995) Predicting volatility in the foreign exchange market, 50 (2), 507-528.
• Fleming, J. (1998) The quality of market volatility forecasts implied by S&P 100 index option prices, Journal of Empirical Finance, 5, 317-345.
• Christiansen, C. and Hansen, C. (2002) Implied volatility of interest rate options: an empirical investigation of the market model, Review of Derivatives Research, 5 (1), 51-79.
• Ferris, S., Kim, W. and Park, K. (2008) The informational quality of implied volatility and the volatility risk premium, Applied Economics Letter, 1-6, 51-79.
• Taylor, S., Yadav, P. and Zhang, Y. (2010) The information content of implied volatilities and model-free volatility expectations: Evidence from options written on individual stocks, Journal of Banking and Finance, 34 (4), 871-881.
• Seo, S. and Kim, J. (2015) The information content of option-implied information for volatility forecasting with investor sentiment, Journal of Banking and Finance, 50, 106-120.
• Blau, B., Bowles, T. and Whitby, R. (2016) Gambling Preferences, Options Markets, and Volatility, Journal of Financial and Quantitative Analysis, 51 (2), 515-540.

3.6 Comparison of volatility forecasting approaches

• Jorion, P. (1995) Predicting volatility in the foreign exchange market, 50 (2), 507-528.
• Amin, K. and Ng, V. (1997) Inferring future volatility from the information in implied volatility in Eurodollar options: a new approach, Review of Financial Studies, 10 (2), 333-367.
• Bollerslev, T. and Wright, J. (2001) High-frequency data, frequency domain inference, and volatility forecasting, The Review of Economics and Statistics, 83 (4), 569-602.
• Andersen, T., Bollerslev, T., Diebold, F. and Labys, P. (2003) Modeling and forecasting realised volatility, Econometrica, 71(2), 579-625.
• Pong, S., Shackleton, M, Taylor, S. and Xu, X. (2004) Forecasting currency volatility: a comparison of implied volatilities and AR(FI)MA models, Journal of Banking and Finance, 28 (10), 2541-2563.
• Martens, M. and Zein, J. (2004) Predicting financial volatility: high-frequency time-series forecasts vis-a-vis implied volatility, Journal of Futures Markets, 24 (11), 1005-1028.
• Hansen, P. and Lunde, A. (2005) A forecast comparison of volatility models: does anything beat a GARCH(1,1), Journal of Applied Econometrics, 20, 873-889.
• Hansen, P. and Lunde, A. (2005) Consistent ranking of volatility models, Journal Econometrics, 131, 97-121.
• Poon, S. and Granger, C. (2005) Practical issues in forecasting volatility, Financial Analysts Journal, 61 (1), 45-56.
• Andersen, T., Bollerslev, T. and Diebold, F. (2007) Roughing it up: Including jump components in the measurement, modelling, and forecasting of return volatility, Review of Economics and Statistics, 89, 701-720.
• Corsi, F. (2009) A simple approximate long-memory model of realized volatility, Journal of Financial Econometrics, 7 (2), 174-196.
• Prokopczuk, M. and Wesen, S. (2014) The importance of the volatility risk premium for volatility forecasting, Journal of Banking and Finance, 40, 303-320.

3.7 Forecasting implied volatility

• Harvey, C. and Whaley, R. (1992) Market volatility prediction and efficiency of the S&P 100 index option markets, Journal of Financial Economics, 31, 43-73.
• Dumas, B., Fleming, J. and Whaley, R. (1998) Implied volatility functions: empirical tests, Journal of Finance, 53 (6), 2059-2106.
• Peña, I., Rubio, G. and Serna, G. (1999) Why do we smile? On the determinants of the implied volatility function, Journal of Banking and Finance, 23 (8), 1151-1179.
• Guo, D. (2000) Dynamic volatility trading strategies in the currency option market using stochastic volatility forecasts, Review of Derivatives Research, 4 (2), 133-154.
• Brooks, C. and Oozeer, M. (2002) Modelling the implied volatility of options on Long Gilt futures, Journal of Business Finance and Accounting, 29, 111-137.
• Gonçalves, S. and Guidolin, M. (2006) Predictable dynamics in the S&P500 index options implied volatility surface, Journal of Business, 79 (3), 1591-1636.
• Ahoniemi, K. (2006) Modeling and Forecasting Implied Volatility - an Econometric Analysis of the VIX Index, Discussion Paper 129, University of Helsinki.
• Konstandini, E., Skiadopoulos, G. and Tzagkaraki, E. (2007) Can the evolution of implied volatility be forecasted? Evidence from European and US implied volatility indices, Journal of Banking & Finance, 32 (11), 2401-2411.

4. Trading instruments

4.1 General

• Hull, J. (1997) Options, Futures and Other Derivatives, 8th edition, Pearson.
• Bis (2013) Triennal Central Bank Survey, Bank of International Settlements.

4.2 Currency options

• Garman, M. and Kohlhagen, S. (1983) Foreign currency option values, Journal of International Money and Finance, 2, 231-237.
• Grabbe, J. (1983) The pricing of call and put options on foreign exchange, Journal of International Money and Finance, 2, 239-253.
• Amin, K. and Jarrow, R. (1991) Pricing foreign currency options under stochastic interest rates, Journal of International Money and Finance, 10, 310-329.

4.3 Futures options

• Black, F. (1976) Studies of Stock Price Volatility Changes, Proceedings of the 1976 meetings of the American Statistical Association, 177-181.
• Hilliard, J. and Reis, R. (1998) Valuation of commodity futures and options under stochastic convenience yields, interest rates, and jump diffusions in the spot, Journal of Financial and Quantitative Analysis, 33 (1), 61-86.
• Miltersen, K. and Schwartz, E. (1998) Pricing of options on commodity futures with stochastic term structures of convenience yields and interest rates, Journal of Financial and Quantitative Analysis, 33 (1), 33-59.

4.4 Naked straddle/strangles/ratio spreads

• Chaput, J. and Ederington, L. (2005) Volatility trade design, The Journal of Futures Markets, 25 (3), 243-279.
• Chaput, J. and Ederington, L. (2005) Ratio spreads, Proceedings of the Accounting and Finance Association of Australia and New Zealand Conference

4.5 Delta-hedging with transaction costs

• Leland, H. (1985) Option pricing and replication with transaction costs, Journal of Finance, 40, 1283-1301.
• Hodges, S. and Neuberger, A. (1989) Optimal replication of contingent claims under transaction costs, Review of Futures Markets, 8, 222-242.
• Dumas, B. and Luciano, E. (1991) An exact solution to a dynamic portfolio choice problem under transaction costs, Journal of Finance, 46, 577-595.
• Bensaid, B., Lesne, J., Pages, H. and Scheinkman, J. (1992) Derivative asset pricing with transaction costs, Mathematical Finance, 2 (2), 63-86.
• Boyle, P. and Vorst, T. (1992) Option replication in discrete time with transaction costs, Journal of Finance, 47, 271-293.
• Davis, M., Panas, V. and Zariphopoulou, T. (1993) European option pricing with transaction costs, SIAM Journal on Control and Optimization, 31 (2), 470-493.
• Edirisinghe, C., Naik, V. and Uppal, R. (1993) Optimal replication of options with transaction costs and trading restrictions, Journal of Financial and Quantitative Analysis, 28, 117-138.
• Soner, H., Shreve, S. and Cvitanic, J. (1995) There is no nontrivial hedging portfolio for option pricing with transaction costs, Annals of applied probability, 5, 327-355.
• Clewlow, L. and Hodges, S. (1997) Optimal delta-hedging under transaction costs, Journal of Political Economy, 81 (3), 637-654.
• Whalley, A. and Wilmott, P. (1997) An asymptotic analysis of an optimal hedging model for option pricing with transaction costs, Mathematical Finance, 7 (3), 307-324.
• Perrakis, S. and Lefoll, J. (2000) Option pricing and replication with transaction costs and dividends, Journal of Economic Dynamics and Control, 24 (11-12), 1527-1561.
• Zakamouline, V. (2006) European option pricing and hedging with both fixed and proportional transaction costs, Journal of Economic Dynamics and Control, 30 (1), 1-25.
• Whalley, A. (2011) Optimal partial hedging of options with small transaction costs, Journal of Futures Markets, 31, 855-897.
• Hull, J. and White, A. (2017) Optimal Delta Hedging for Options, Journal of Banking and Finance, Forthcoming.

4.6 Options exercise

• Jensen, M. and Pedersen, L. (2016) Early option exercise: Never say never, Journal of Financial Economics, 121 (2), 278-299.

4.7 Volatility/Variance swaps and futures

• Carr, P. and Madan, D. (1998) Towards a theory of volatility trading, Volatility, Risk Publications, Robert Jarrow, ed., 417-427.
• Demeterfi, K., Derman, E., Kamal, M. and Zou, J. (1999) More than you ever wanted to know about volatility swaps, Goldman Sachs, Quantitative Strategies Research Notes.
• Whaley, R. (2000) The investor fear gauge, Journal of Portfolio Management, 26, 12-17.
• Carr, P. and Wu, L. (2006) A tale of two indices, Journal of Derivatives, Spring, 13-29.
• Filipovic, D., Gourier, E. and Mancini, L. (2016) Quadratic variance swap models, Journal of Financial Economics, 119 (1), 44-68
• Prokopczuk, M., Symeonidis, L. and Simen, C. (2017) Variance risk in commodity markets, Journal of Banking and Finance, 81, 136-149

5. Volatility strategies

5.1 Long-only or short-only

• Jackwerth, J. (2000) Recovering risk aversion from option prices and realised returns, The Review of Financial Studies, 13 (2), 433-451.
• Coval, J. and Shumway, T. (2001) Expected option returns, Journal of Finance, 56, 983-1009.
• Bakshi, G. and Kapadia, N. (2003) Delta-hedged gains and the negative market volatility risk premium, Review of Financial Studies, 16, 527-566.
• Doran, J. and Ronn, E. (2005) The bias in Black-Scholes/Black implied volatility: An analysis of equity and energy markets, Review of Derivative Research, 8 (3), 177-198.
• Low, B. and Zhang, S. (2005) The volatility risk premium embedded in currency options, Journal of Financial and Quantitative Analysis, 40 (4), 803-832.
• Jones, C. (2006) A nonlinear factor analysis of S&P 500 index option returns, Journal of Finance, 41, 2325-2363.
• Hafner, R. and Wallmeier, M. (2007) Volatility as an asset class: European evidence, European Journal of Finance, 13, 621-644.
• McKenzie, A., Thomsen, M. and Phelan, J. (2007) How do you straddle hogs and pigs? Ask the Greeks, Applied Financial Economics, 17 (7), 511-520.
• Fornari, F.(2008) Assessing the compensation for volatility risk implicit in interest rate derivatives, Working paper 859, European Central Bank.
• Hafner, R. and Wallmeier, M. (2008) Optimal investments in volatility, Financial Markets and Portfolio Management, 22 (2), 147-167.
• Broadie, M., Chernov, M. and Johannes, M. (2009) Understanding index option returns, Review of Financial Studies, 22 (11), 4493-4592.
• Santa-Clara, P. and Saretto, A. (2009) Option strategies: Good deals and margin calls, Journal of Financial Markets, 12, 391-417.
• Trolle, A., Schwartz, E. (2010) Variance risk premia in energy commodities, Journal of Derivatives, 17 (3), 15-32.
• Brittain, L., Garcia, P. and Irwin, S. (2011) Live and feeder cattle options markets: return, risk and volatility forecasting, Journal of Agricultural and Resource Economics, 36 (1), 28-47.
• Mueller, P., Vedolin, A. and Choi, H. (2012) Bond variance risk premia, Working paper, London School of Economics.
• Bondarenko, O. (2014) Why are put options so expensive?, Quarterly Journal of Finance, 4 (3).

5.2 Covered call

• Merton, R., Scholes, M. and Gladstein, M. (1978) The returns and risk of alternative call option portfolio investment strategies, Journal of Business, 51, 183-242.
• Leland, H. (1999) Beyond mean-variance: Performance measurement in a nonsymmetrical world, Financial Analysts Journal, 55 (1), 27-35.
• Rendleman, R. (2001) Covered call writing from an expected utility perspective, Journal of Derivatives, 8 (3), 63-75.
• Whaley, R. (2002) On the return and risk of the CBOE BuyWrite monthly index, Journal of Derivatives, Winter, 35-42.
• Bollen, N. and Whaley, R. (2004) Does net buying pressure affect the shape of implied volatility functions?, Journal of Finance, 59 (2), 711-754.
• Feldman, B. and Roy, D. (2005) Passive options-based investments strategies: The case of the CBOE S&P 500 BuyWrite index, Journal of Investing, Summer.
• Kapadia, N. and Szado, E. (2007) The risk and return characteristics of the buy-write strategy on the Russell 2000 index, Journal of Alternative Investments, Spring, 1-18.
• Han, B. and Cao, J. (2013) Cross-section of option returns and idiosyncratic stock volatility, Journal of Financial Economics, 108, 231-249.
• Murray, S. (2013) A Margin Requirement Based Return Calculation for Portfolios of Short Option Positions, Managerial Finance, 39 (6), 550-568.

5.3 Directional and Relative value

• Burghardt, G. and Lane, M. (1990) How to tell if options are cheap, Journal of Portfolio Managament, 16 (2), 72-78.
• Harvey, C. and Whaley, R. (1992) Market volatility prediction and efficiency of the S&P 100 index option markets, Journal of Financial Economics, 31, 43-73.
• Noh, J., Engle, R. and Kane, A. (1994) Forecasting volatility and option prices of the S&P 500 index, Journal of Derivatives, 2 (1), 17-30.
• Guo, D. (2000) Dynamic volatility trading strategies in the currency option market using stochastic volatility forecasts, Review of Derivatives Research, 4 (2), 133-154.
• Ammann, M. and Herriger, S. (2002) Relative implied volatility arbitrage with index options, Financial Analysts Journal, 58 (6), 42-55.
• Brooks, C. and Oozeer, M. (2002) Modelling the implied volatility of options on Long Gilt futures, Journal of Business Finance and Accounting, 29, 111-137.
• Low, B. and Zhang, S. (2005) The volatility risk premium embedded in currency options, Journal of Financial and Quantitative Analysis, 40 (4), 803-832.
• Ahoniemi, K. (2006) Modeling and Forecasting Implied Volatility - an Econometric Analysis of the VIX Index, Discussion Paper 129, University of Helsinki.
• Constantinides, G., Jackwert, J. and Perrakis, S. (2006) Mispricing of S&P500 index options, Review of Financial Studies, 40 (4), 803-832.
• Gonçalves, S. and Guidolin, M. (2006) Predictable dynamics in the S&P500 index options implied volatility surface, Journal of Business, 79 (3), 1591-1636.
• Goyal, A. and Saretto, A. (2009) Cross-section of option returns and volatility, Journal of Financial Economics, 94 (2), 310-326.
• Chalamandaris, G. and Tsekrekos, A. (2010) Predictable dynamics in implied volatility surfaces from OTC currency options, Journal of Banking and Finance, 34 (6), 1175-1188.
• Audrino, F. and Colangelo, D. (2011) Option strategies based on semi-parametric implied volatility surface prediction, Journal of Investment Strategies, 1 (1), 3-41.
• Han, B. and Cao, J. (2013) Cross-section of option returns and idiosyncratic stock volatility, Journal of Financial Economics, 108, 231-249.
• Bali, T. and Murray, S. (2013) Does risk-neutral skewness predict the cross-section of equity option portfolio returns?, Journal of Financial and Quantitative Analysis, 48 (4), 1145-1171.
• Eraker, B. (2013) The performance of model based option trading strategies, Review of Derivatives Research, 16, 1-23.
• Murray, S. (2013) A Margin Requirement Based Return Calculation for Portfolios of Short Option Positions, Managerial Finance, 39 (6), 550-568.
• Boyer, B. and Vorkink, K. (2014) Stock options as lotteries, Quarterly Journal of Finance, 69, 1485-1528.
• Bernales, A. and Guidolin, M. (2014) Can we forecast the implied volatility surface dynamics of equity options? Predictability and Economic Value Tests, Quarterly Journal of Finance, 69, 1485-1528.
• Faias, J. and Santa-Clara, P. (2017) Optimal Option Portfolio Strategies: Deepening the Puzzle of Index Option Mispricing, Journal of Financial and Quantitative Analysis, 52 (1), 277-303.

5.4 Predicting underlying price using volatility

• Corte, P., Ramadorai, T. and Sarno, L. (2016) Volatility risk premia and exchange rate predictability, The Journal of Financial Economics, 120 (1), 21-40.
• Ge, L., Lin, T. and Pearson, N. (2016) Why does the option to stock volume ratio predict stock returns?, The Journal of Financial Economics, 120 (3), 601-622.
• Andersen, T., Fusari, N. and Todorov, V. (2017) Short-term market risks implied by weekly options, The Journal of Finance, 72 (3), 1335-1386.
• London, J. and Zhou, H. (2017) Variance risk premiums and the forward premium puzzle, The Journal of Financial Economics, 124 (2), 415-440.

Summary

Helder Palaro is a quantitative researcher, with interests in portfolio management, tactical asset allocation, volatility trading, trend-following and machine learning applied to finance.

Professional Experience

Founding partner, Bayes Capital Management, London UK (2020-) (company based in São Paulo, Brazil)

Head of Research. Investigating and implementing alternative data, new indicators and new statistical methods for systematic strategies in the Brazilian and global equity markets. Developing a global trend-following/risk-premium strategy across asset classes, trading future contracts.

AZ Quest signs agreement with Bayes Capital

Palaro, H. (2021) Alternative models to portfolio selection in the Brazilian market.

Palaro, H. (2021) Applying the IPCA model in the Brazilian market.

Independent Systematic Trader, Monaco (2013-2020)

Developed and traded several strategies which explored inefficiencies in the global derivative markets, including a volatility arbitrage strategy and an adaptive risk-premium strategy. The strategies were implemented by futures and options exchanged-traded contracts.

Quantitative Analyst, AHL, Man Group, London UK (2007-2011)

Worked within the volatility arbitrage team. Created strategies for volatility trading using options for several asset classes, such as equities, bonds, commodities and foreign exchange. Developed strategies for delta-hedging options minimizing transaction costs. Fitted volatility models for high-frequency data.

Embedded Systems Programmer, PST Electronics, Campinas, Brazil (1996-1998) Designed Microchip PIC machine-language software for car alarms, power windows and other automotive products.

Education

PhD in Finance, Bayes Business School (formerly known as Cass), City University, London UK (2004-2007)

Kat, H and Helder Palaro (2007) Replication-Based Evaluation of Hedge Fund Performance.

Kat, H and Helder Palaro (2006) Hedge Fund Indexation the Fundcreator Way: Efficient Hedge Fund Indexation without Hedge Funds.

Kat, H and Helder Palaro (2006) Tell Me What You Want, What You Really, Really Want! An Exercise in Tailor-Made Synthetic Fund Creation.

Kat, H and Helder Palaro (2006) Replication and Evaluation of Funds of Hedge Funds Returns, in Fund of Hedge Funds: Performance, Assessment, Diversification and Statistical Properties (eds: Greg Gregoriou), Chapter 3, Elsevier Press.

Kat, H and Helder Palaro (2005) Who Needs Hedge Funds? A Copula-Based Approach to Hedge Fund Return Replication ,

Kat, H and Helder Palaro (2005) Hedge Fund Returns: You Can Make Them Yourself! , Journal of Wealth Management 8, 62-68.

MSc in Statistics, State University of Campinas, Brazil (2002-2004)

Hotta, L K; Lucas, E C and Helder Palaro (2008) Estimation of VaR using Copula and Extreme Value Theory, Multinational Finance Journal 12 (3/4), 205-218.

Hotta, L K and Helder Palaro (2006) Using Conditional Copulas to Estimate Value at Risk, Journal of Data Science 4 (1), 93-115.

BSc in Statistics, State University of Campinas, Brazil (1998-2001)

Electronics Technician, Technical high school of Campinas, Brazil (1993-1996) Electronics, digital circuits, power engineering, telecommunications, control systems, signal processing, instrumentation.

Finance Hub Presentations

Network diversification for a robust portfolio allocation, 20th/Jun/2022.

ML Models for Portfolio Selection in the Brazilian market, 13th/Dec/2021.

Breaking Bad Trends, 20th/Sep/2021.

IPCA Model, 16th/Nov/2020.

Editorial Work

Referee (2017-), Communication in Statistics.

Referee (2012-), Brazilian Journal of Probability and Statistics.

Referee (2012-), Statistics and Probability Letters.

Referee (2011-), Communications in Statistics - Simulation and Computation.

Referee (2010-), The Journal of Risk.

Referee (2009-), Asia Pacific Management Review.

Referee (2009-), European Journal of Finance.

Referee (2008-), Brazilian Review of Finance.

Referee (2008-), International Journal of Business and Economics.