Arturo Leccadito

Università della Calabria | Università della Calabria · Department of Economics and Statistics

We present an optimization problem to determine the minimum capital requirement for a non-life insurance company. The optimization problem imposes a non-positive Conditional Value-at-Risk (CVaR) of the insurer’s net loss and a portfolio performance constraint. When expressing the optimization problem in a semiparametric form, we demonstrate its con...

Co-moments of asset returns play a major role in financial contagion during crises. We study the properties of a particular specification of the generalized bivariate normal distribution which allows for co-volatility and co-skewness. With this probability distribution, formulae for single-name and exchange options can be evaluated quickly since th...

We present an optimization problem to determine the minimum capital requirement for a non-life insurance company. The optimization problem imposes a non-positive Conditional Value-at-Risk (CVaR) of the insurer's net loss and a portfolio performance constraint. When expressing the optimization problem in a semiparametric form, we demonstrate its con...

We use a robust measure of non-linear dependence, the Gerber cross-correlation statistic, to study the cross-dependence between the returns on Bitcoin and a set of commodities, namely wheat, gold, platinum and crude oil WTI. The Gerber statistic enables us to obtain a more robust co-movement measure since it is neither affected by extremely large n...

In recent years, the international community has been increasing its efforts to reduce the human footprint on air pollution and global warming. Total CO 2 emissions are a key component of global emission, and as such, they are closely monitored by national and supranational entities. This study evaluates the performance of a broad set of forecastin...

This study examines the prices of options contingent on electricity futures traded on the European Energy Exchange, with the aim to recover the probability density functions and risk premia. After we extract the risk-neutral probability density functions from prices of such options, we transform the risk-neutral densities into real-world densities...

This study investigates the daily co-movements in commodity prices over the period 2006–2020 using a novel approach based on a time-varying Gerber correlation. The statistic is computed considering a set of probabilities estimated via non-traditional models that give a time-varying structure to the measure. The results indicate that there are sever...

We introduce backtesting methods to assess Value-at-Risk (VaR) and expected shortfall (ES) that require no more than desktop VaR violations as inputs. Maintaining an integrated VaR perspective, our methodology relies on multiple testing to combine evidence on the frequency and dynamic evolution of violations, and to capture more information than a...

This study presents a set of integer-valued generalised autoregressive conditional heteroskedastic models to identify possible transmission channels of joint extreme price moves (coexceedances) across a group of agricultural commodities. These models are very useful to identify factors affecting joint tail events and they are superior in terms of g...

Cyber risks and particularly data breaches constitute one of the new frontiers of risk modeling for insurers across the world. We use the cointegration methodology to uncover the relation between data breaches and Bitcoin-related variables. We perform our analyses on two different datasets of data breaches. In both cases, we provide statistical evi...

This paper provides an econometric analysis aiming at evidencing the dynamics showed by the S&P 500 market index during the period of 4 January 2001–28 April 2020, in which the subprime crisis has taken place and the COVID-19 crisis has begun. In particular, we fit a three-regime switching model that allows market parameters to behave differently d...

The present study aims at modelling market risk for four commodities, namely West Texas Intermediate (WTI) crude oil, natural gas, gold and corn for the period 2007–2017. To this purpose, we use Extreme Value Theory (EVT) together with a set of Conditional Auto-Regressive Logit (CARL) models to predict risk measures for the futures return series of...

We use a set of conditional auto-regressive logit (CARL) models to predict tail probabilities for returns calculated from futures of four energy commodities. We show that CARL models are very useful to forecast the probability of tail events in energy markets and the forecasting ability of the models generally increases when commodity implied volat...

The present study investigates the relation between different measures of price volatility (conditional, historical and implied) and different types of speculation (short-run, long-run and excessive) in futures commodity markets for the period 2000–2015. To this purpose, we first use a pairwise Granger causality analysis for 28 individual commoditi...

The aim of this study is to investigate contagion risk from commodity markets towards the whole economy and across sectors. Indeed, the financialization and integration of commodity markets expose the economy to potential contagion risks i.e., adverse shocks hitting one or more commodity markets spread to the entire economic system. To this purpose...

Theoretical models applied to option pricing should take into account the empirical characteristics of financial time series. In this paper, we show how to price basket options when the underlying asset prices follow a displaced log-normal process with jumps, capable of accommodating negative skewness and excess kurtosis. Our technique involves Her...

The paper proposes a flexible and computationally efficient lattice-based approximation for evaluating European and American compound options under stochastic volatility models. In comparison with the existing evaluation procedures, the method is more flexible because it may accommodate several stochastic volatility specifications of the asset pric...

Credit default risk for an obligor can be hedged with either a credit default swap (CDS) or a constant maturity credit default swap (CMCDS). An investor should be indifferent to the instrument used since both provide the same terminal payoff. We find strong evidence of persistent differences in the hedging cost associated with the two comparable co...

A common feature of financial time series is their strong persistence. Yet, long memory may just be the spurious effect of either structural breaks or slow switching regimes. We explore the effects of spurious long memory on the elasticity of the stock market price with respect to volatility and show how cross-sectional aggregation may generate spu...

This article describes a new methodology to compute the value at risk and the expected shortfall using a power transformation technique. The methodology is an improvement of a recent method employing Johnson's system of distributions and is based on the idea of matching exactly the first four moments of the target portfolio distribution. The perfor...

This paper proposes a regime-switching version of the Ohlson model (Contemp Account Res 11:661–687, 1995). We assume that abnormal earnings and the other information variable follow a regime-switching dynamics, which represents a simple yet rigorous way to incorporate the stochastic volatility pattern revealed by financial variables. We derive clos...

We propose independence and conditional coverage tests which are aimed at evaluating the accuracy of Value-at-Risk (VaR) forecasts from the same model at different confidence levels. The proposed procedures are multilevel tests, i.e., joint tests of several quantiles corresponding to different confidence levels. In a comprehensive Monte Carlo exerc...

We present an explicit formula and a multinomial approach for pricing contingent claims under a regime-switching jump-diffusion model. The explicit formula, obtained as an expectation of Merton-type formulae for jump-diffusion processes, allows to compute the price of European options in the case of a two-regime economy with lognormal jumps, while...

The empirical characteristics of the underlying asset prices should be taken into account for the pricing and hedging of options. In this paper, we show how to price basket options when assets follow the shifted asymmetric jump-diffusion process. The methodology is based on the Hermite polynomial expansion that can match exactly the first m moments...

Theoretical models applied to option pricing should take into account the empirical characteristics of the underlying financial time series. In this paper, we show how to price basket options when assets follow a shifted log-normal process with jumps capable of accommodating negative skewness. Our technique is based on the Hermite polynomial expans...

We present a binomial approach for pricing contingent claims when the parameters governing the underlying asset process follow a regime-switching model. In each regime, the asset dynamics is discretized by a Cox–Ross–Rubinstein lattice derived by a simple transformation of the parameters characterizing the highest volatility tree, which allows a si...

Lévy processes have been successfully applied in the modeling of financial assets. Useful information such as implied volatility, skewness, and risk-preferences can be derived from market option prices. In this paper, we advocate using Esscher conjugate Lévy processes to estimate risk-neutral and empirical densities. More specifically, we employ th...

Edgeworth binomial trees were applied to price contingent claims when the underlying return distribution is skewed and leptokurtic, but with the limitation of working only for a limited set of skewness and kurtosis values. Recently, Johnson binomial trees were introduced to accommodate any skewness-kurtosis pair, but with the drawback of numerical...

Long-memory represents a parsimonious way of modeling highly persistent yet mean-reverting processes. Roughly speaking, a long-range dependent time series has slowly decaying autocorrelations. The notion of long memory in time series was introduced in the non-economic literature by Hurst [1951] and in econometrics by Granger and Joyeux [1980]. In t...

This paper describes a new technique that can be used in financial mathematics for a wide range of situations where the calculation of complicated integrals is required. The numerical schemes proposed here are deterministic in nature but their proof relies on known results from probability theory regarding the weak convergence of probability measur...

A common feature of financial time series is their strong persistence. Yet, long memory may just be the spurious effect of either structural breaks or slow switching regimes. So far, five testing procedures have been proposed to distinguish between true and spurious long memory. The tests are constructed under the null of true long memory versus th...

We propose a fractional version of two well-known credit risk pricing structural models: the Merton and Black and Cox models. We assume that the value of the firm obeys to a Geometric Fractional Brownian Motion. Prices for the equity, the bond and credit spreads are derived and a sensitivity analysis is performed.

We propose new lattice-based algorithms for option and bond pricing, which rely on computationally simple trees, i.e., trees with the number of nodes that grows at most linearly in the number of time intervals. Contrary to commonly used methods, the target diffusion is approximated directly, without having to transform the original process into a c...

Credit default risk for an obligor can be hedged away with either a credit default swap (CDS) contract or the alternative constant maturity credit default swap contract (CMCDS). An economic agent should be indifferent to which instrument is used since both cover the same risk with identical payoffs. On a large universe of obligors we find strong ev...

This paper proposes markovian models in portfolio theory and risk management. In a first analysis, we describe discrete time optimal allocation models. Then, we examine the investor’s optimal choices either when returns are uniquely determined by their mean and variance or when they are modeled by a Markov chain. Moreover we propose different mode...

This paper explores trading strategies to identify possible imbalances that may have been existed in the credit markets, during the period 2001-2006, when pairing CDS and CMCDS on the same name. To this end, a large database of single-name CDS premia is used to produce the corresponding CMCDS prices, derived by implementing common market models. It...

Summary This paper proposes markovian models in portfolio theory and risk management. At first, we describe discrete time optimal allocation models. Then, we examine the investor's optimal choices either when the returns are uniquely determined by their mean and variance or when they are modeled by a Markov chain. We subject these models to back-te...