Our paper titled “A new bivariate approach for modeling the interaction between stock volatility and interest rate: An application to S&P500 returns and options” has been accepted for publication on the European Journal of Operational Research. The pre-proof of the paper is now already available here.
In co-authoring this paper, I collaborated with Luca Vincenzo Ballestra and Andrea Guizzardi (both from the Department of Statistical Sciences, Alma Mater Studiorum University of Bologna), and I express my sincere gratitude to them for their contributions in bringing this work to fruition.
In the paper we propose a new GARCH model taking into account the movements of the interests rates and we derive explicit recursion formulas for the moment generating function. By performing a comprehensive empirical analysis based on real return and option data we show that our approach performs better than GARCH models with constant interest rate.
Please feel free to comment below or contact us for more information about the paper. We appreciate any feedback as always.
Reference: Luca Vincenzo Ballestra, Enzo D’Innocenzo, Andrea Guizzardi, A new bivariate approach for modeling the interaction between stock volatility and interest rate: An application to S&P500 returns and options, European Journal of Operational Research, 2023