ABSTRACT Title of dissertation: THREE ESSAYS ON VOLATILITY ISSUES IN FINANCIAL MARKETS

Studies of asset returns time-series provide strong evidence that at least two stochastic factors drive volatility. The \u85rst essay investigates whether two volatility risks are priced in the stock option market and estimates volatility risk prices in a cross-section of stock option returns. The essay \u85nds that the risk of changes in short-term volatility is signi\u85cantly negatively priced, which agrees with previous studies of the pricing of a single volatility risk. The essay \u85nds also that a second volatility risk, embedded in longer-term volatility is signi\u85cantly positively priced. The di¤erence in the pricing of short- and long-term volatility risks is economically signi cant- option combinations allowing investors to sell short-term volatility and buy long-term volatility o¤er average pro\u85ts up to 20 % per month. Value-at-Risk measures only the risk of loss at the end of an investment horizon. An alternative measure (MaxVaR) has been proposed recently, which quanti\u85es the risk of loss at or before the end of an investment horizon. The second essay studies such a risk measure for several jump processes (di¤usions with one- and two-sided jumps and two-sided pure-jump processes with di¤erent structures o