Bruno Feunou is a Principal Researcher at the Bank of Canada’s Financial Markets Department. Before this position at the Bank of Canada, he worked at Duke University as a post-doc associate. He completed his Ph.D-Degree at the University of Montreal. During his thesis, he was supported by several Grants including IFM2, Banque Laurentienne, CIREQ and CREST. He also studied Mathematics and Statistics at several universities in Africa including the University of Dschang, Yaoundé I, ISSEA of Yaoundé and ENSEA of Abidjan. In these studies, he was supported by a grant from the European Union to study Statistics and Econometrics.
This paper provides a novel methodology for estimating option pricing models based on risk-neutral moments. We synthesize the distribution extracted from a panel of option prices and exploit linear relationships between risk-neutral cumulants and latent factors within the continuous time affine stochastic volatility framework.
Advances in variance analysis permit the splitting of the total quadratic variation of a
jump diffusion process into upside and downside components. Recent studies establish
that this decomposition enhances volatility predictions, and highlight the
upside/downside variance spread as a driver of the asymmetry in stock price
In this note, we find that market participants react to an unexpected change in the tone of Canadian monetary policy statements. When the market perceives that the Bank of Canada plans to tighten (or alternatively, loosen) the monetary policy earlier than previously expected, the Canadian dollar appreciates (or depreciates) and long-term Government of Canada bond yields increase (or decrease). The tone of a statement is particularly relevant to the market when the policy rate has been unchanged for some time.