Price Jump Dynamics

(with J. Hanousek and E. Kocenda)

Focuses on the dynamics of extreme price movements over multivariate time series to study whether the information flow across the markets has a different structure during the panic times and quantify that difference. We develop robust estimation techniques for identification of correlated extreme price movements in the multivariate context. We combine the existing literature and extend it into the multivariate maximum-likelihood estimators, which we test using extensive Monte Carlo analysis. Although we mainly work in the discrete-time frame work, we address the issue of the limit to the continuous time case. We employ high-frequency data for stocks, FOREX and commodities to test our framework in the different market sectors. We use these findings for the pricing issues, namely the VaR analysis for stock markets. Finally, we confirm our findings by employing non-parametric methods. We develop a methodology based on the Random Matrix Theory and test it on the data.

Two-country DSGE model with unobserved shocks

(with M. Pakos)

Develops a continuous time DSGE model where investors endowed with Epstein-Zinn preferences are optimizing allocation of their portfolio between two countries, the US market and the rest of the world. The performance of two economies is not completely independent, therefore we consider them to follow a common trend from which they can mutually diverge. The common trend goes in two directly unobservable regimes: peak and through. The investors have to employ Bayesian updating technique to learn about the current market regime. The proposed model allows us to capture the dynamics of various types of recession more accurately. We further assess explicitly the components from a switching regime and from a two-tree part.

Information Flow over Foreign Exchange Markets

Studies the information flow over foreign exchange spot markets by developing a testing methodology based on non-parametric information theory, which we first test on a large set simulated time series with various correlation patterns running in general over a large period of time. Then, we employ high frequency time series data at 1-minute frequency and study the information flow between the time series. We further divide the trading day into 2-hours blocks and study the change in the information flow during the different phases of the trading day, which reflects the fact that three main trading centers in Asia, Europe and USA do not operate at the same moments. Then, we test the change in the information flow around the major economic events.

Model of Employment, Production and Consumption: Stability under Exogenous Structural Sjocks

(with H. Lavicka)

Studies the stability of the simulated economy-like system based on the model of Employment, Production and Consumption. We study the multivariate phase diagrams under exogenous changes of economic conditions as well as structural changes in the economy. The results suggests the existence of the dierent phases of the economy with sharp boundaries. The boundaries tends to support the existence of non-linear transitions between phases, or a surprisingly large response to small changes in the economy. The ndings thus supports the claim that economic like systems are non-linear and any extrapolation out of the observed data is not a priory valid. One rather accepts the possible non-linear behavior. Finally, study shows that replacing the dynamic aspects of the economic behavior by constant eects tends to produce more fragile system, which has its immediate consequence in the policies implemented.

Counterparty Credit Risk

(with Ch. Kenyon, Credit Suisse)

Studies the effect of the counterparty credit risk (CCR) on pricing of various financial derivatives. The special attention is spent on the effects of the Basel III regulation in the context of the CCR and derivation and modelling (Monte Carlo) of the pricing formulas for the Contingent Credit Default Swaps. The study also focuses on the role of the information in the pricing of the credit instruments in the incomplete markets. Special attention is paid for practical implementations from the point of the financial industry.