2. Two firms are related not only thru macro but also certain contagion effect.3. Sort of. The effect of SV decreases as ttm decreases but jump effect doesn't.6. Breeden-Litzenberger method, being discussed.

This is MBA material and doesn't sound like a quant question though...http://en.wikipedia.org/wiki/Free_cash_flow

<t>Heston belongs to the Affine Term Structure model and has closed form solution.SABR is not affine in general, depending on beta and is restrictive in certain aspect.Equity option/vol smile is better modeled nowadays. Term structure of bond yield is difficult to model/predict as far as I know in a...

dynamic conditional corr (DCC) or Wishart

When writing a paper, yes. When playing with your money, you will need to know whether the error you get is from a sensible model (misspecification).

<t>I talked to a prof. His impression is that people don't use Heston model a lot and Hull-White method can be more popular. This is contrary to academia. In finance research, Heston or Heston-Nandi is the only acceptable way. For jumps, I heard Credit Suisse has considered jump, but don't know whet...

<t>I think there are some notable failures in the finance theory:1. If you regress return on vol, the sign is frequently zero or negative. In my mind, this is not due to the fact that we need to build more complicated model, but because we need to distinguish between expected return and unexpected r...

<t>I don't think you should directly run the regression like that. In your case, we are assuming that Libor is also risky. Therefore, Libor=true rf + risky rate. CDS spread is also affected by the change in rf and change in risk profile.It is known that nominal rf and inflation display some very per...

<r>You can read the editor reports of journals. For JF: <URL url="http://www.afajof.org/details/page/2866331/Editors-Report.html"><LINK_TEXT text="http://www.afajof.org/details/page/2866 ... eport.html">http://www.afajof.org/details/page/2866331/Editors-Report.html</LINK_TEXT></URL>. Turn-over<100 d...

If you mean you want to publish a paper in the finance field (JF, JFE, RFS), rather than some engineering field, I don't feel this is a good direction to go. There are too many GARCH type of models and still they don't even get the correct sign.

There is a classical finance paper about sto r as CIR, sto vol and jump:http://www.rhsmith.umd.edu/faculty/gbakshi/jf97b.pdf

mean reversion speed=0.03 might be too low. Can you check sensitivity? Increase mean reversion and increase sample?

<t>I guess the non-definite thing means an identification issue and I encountered it before in KF. Hamilton book (KF chapter) should have mentioned this, but I haven't read it for some time.I am not an expert on this but I think such stat opt problem (MLE) is known to be much more nasty that the usu...

It seems you will need to find a textbook that works thru Affine Term Structure Model.

<r>I don't actually quite understand your question, but let me try here to explain the factor model.Multi-factor models like CAPM and Fama-French 3 are not just any general state-space/statistical factor model that you think about. By design and in the mind of Ross for APT, so-called Multi-factor mo...