Asset Pricing with Time Varying Volatility PDF Download

Author: Victor Ng
Publisher:
ISBN:
Category : Stocks
Languages : en
Pages : 216

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Author: Janis Müller
Publisher:
ISBN:
Category :
Languages : en
Pages : 32

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Book Description
We disentangle the risk of time-varying volatility and return in a consumption-based asset pricing model by introducing stochastic volatility of consumption growth to asset prices moving in volatility units instead of moving in time. This time-change approach yields additional insights to risk premia's composition. We explore stochastic volatility empirically where it eases the risk-free rate puzzle and solves the equity premium puzzle if people are very impatient. As a factor it significantly improves the explanation of returns in the cross-section and is not captured by existing factors. Adding our factor helps to explain the momentum effect among other anomalies.

Author: Don U. A. Galagedera
Publisher:
ISBN:
Category :
Languages : en
Pages : 22

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Book Description
This paper provides a review of the main features of asset pricing models. The review includes single-factor and multi-factor models, extended forms of the Capital Asset Pricing Model (CAPM) with higher-order co-moments and asset pricing models conditional on time varying volatility models.

Author: Patrick Boyle
Publisher: Walter de Gruyter GmbH & Co KG
ISBN: 1547401214
Category : Business & Economics
Languages : en
Pages : 298

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Book Description
Trading and Pricing Financial Derivatives is an introduction to the world of futures, options, and swaps. Investors who are interested in deepening their knowledge of derivatives of all kinds will find this book to be an invaluable resource. The book is also useful in a very applied course on derivative trading. The authors delve into the history of options pricing; simple strategies of options trading; binomial tree valuation; Black-Scholes option valuation; option sensitivities; risk management and interest rate swaps in this immensely informative yet easy to comprehend work. Using their vast working experience in the financial markets at international investment banks and hedge funds since the late 1990s and teaching derivatives and investment courses at the Master's level, Patrick Boyle and Jesse McDougall put forth their knowledge and expertise in clearly explained concepts. This book does not presuppose advanced mathematical knowledge, though it is presented for completeness for those that may benefit from it, and is designed for a general audience, suitable for beginners through to those with intermediate knowledge of the subject.

Author: Xiafei Li
Publisher:
ISBN:
Category :
Languages : en
Pages : 26

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Book Description
Numerous studies have documented the failure of the static and conditional capital asset pricing models to explain the difference in returns between value and growth stocks. This paper examines the post-1963 value premium by employing a model that captures the time-varying total risk of the value-minus-growth portfolios. Our results show that the time-series of value premia is strongly and positively correlated with its volatility. This conclusion is robust to the criterion used to sort stocks into value and growth portfolios and to the country under review (U.S. and U.K.). Our paper therefore adds to the weight of evidence on the possible role of idiosyncratic risk in explaining equity returns.

Author:
Publisher:
ISBN:
Category :
Languages : en
Pages :

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Book Description
This thesis contains two essays. In the first essay, we investigate the impact of time varying volatility of consumption growth on the cross-section and time-series of equity returns. While many papers test consumption-based pricing models using the first moment of consumption growth, less is known about how the time-variation of consumption growth volatility affects asset prices. In a model with recursive preferences and unobservable conditional mean and volatility of consumption growth, the representative agent's estimates of conditional moments of consumption growth affect excess returns. Empirically, we find that estimated consumption volatility is a priced source of risk, and exposure to it predicts future returns in the cross-section. Consumption volatility is also a strong predictor of aggregate quarterly excess returns in the time-series. The estimated negative price of risk together with the evidence on equity premium predictability suggest that the elasticity of intertemporal substitution of the representative agent is greater than unity, a finding that contributes to a long standing debate in the literature. In the second essay, I present a simple model to show that if agents face binding portfolio constraints, stocks with high volatility in states of low market returns demand a premium beyond the one implied by systematic risks. Assets whose volatility positively covaries with market volatility also have high expected returns. Both effects of this idiosyncratic volatility risk premium are strongest for assets that face more binding trading restrictions. Unlike the prior empirical literature that obtains mixed results when focusing on the level of idiosyncratic volatility, I investigate the dynamic behavior of idiosyncratic volatility and find strong support for my predictions. Comovement of innovations of idiosyncratic volatility with market returns negatively predicts returns for trading restricted stocks relative to unrestricted stocks, and comovement.

Author: Dimitri P. Bertsekas
Publisher:
ISBN: 9781886529267
Category : Mathematics
Languages : en
Pages : 543

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Book Description
"The leading and most up-to-date textbook on the far-ranging algorithmic methododogy of Dynamic Programming, which can be used for optimal control, Markovian decision problems, planning and sequential decision making under uncertainty, and discrete/combinatorial optimization. The treatment focuses on basic unifying themes, and conceptual foundations. It illustrates the versatility, power, and generality of the method with many examples and applications from engineering, operations research, and other fields. It also addresses extensively the practical application of the methodology, possibly through the use of approximations, and provides an extensive treatment of the far-reaching methodology of Neuro-Dynamic Programming/Reinforcement Learning. The first volume is oriented towards modeling, conceptualization, and finite-horizon problems, but also includes a substantive introduction to infinite horizon problems that is suitable for classroom use. The second volume is oriented towards mathematical analysis and computation, treats infinite horizon problems extensively, and provides an up-to-date account of approximate large-scale dynamic programming and reinforcement learning. The text contains many illustrations, worked-out examples, and exercises."--Publisher's website.

Author: Daniel Tortorice
Publisher:
ISBN:
Category :
Languages : en
Pages :

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Author: Wayne Ferson
Publisher: MIT Press
ISBN: 0262039370
Category : Business & Economics
Languages : en
Pages : 497

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Book Description
An introduction to the theory and methods of empirical asset pricing, integrating classical foundations with recent developments. This book offers a comprehensive advanced introduction to asset pricing, the study of models for the prices and returns of various securities. The focus is empirical, emphasizing how the models relate to the data. The book offers a uniquely integrated treatment, combining classical foundations with more recent developments in the literature and relating some of the material to applications in investment management. It covers the theory of empirical asset pricing, the main empirical methods, and a range of applied topics. The book introduces the theory of empirical asset pricing through three main paradigms: mean variance analysis, stochastic discount factors, and beta pricing models. It describes empirical methods, beginning with the generalized method of moments (GMM) and viewing other methods as special cases of GMM; offers a comprehensive review of fund performance evaluation; and presents selected applied topics, including a substantial chapter on predictability in asset markets that covers predicting the level of returns, volatility and higher moments, and predicting cross-sectional differences in returns. Other chapters cover production-based asset pricing, long-run risk models, the Campbell-Shiller approximation, the debate on covariance versus characteristics, and the relation of volatility to the cross-section of stock returns. An extensive reference section captures the current state of the field. The book is intended for use by graduate students in finance and economics; it can also serve as a reference for professionals.

Author: Peter J. Phillips
Publisher:
ISBN:
Category : Prices
Languages : en
Pages : 1016

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Book Description
This dissertation critically analyses the relationship among risk-aversion, the variance exhibited by the risk premium and time-varying variance (volatility) in asset prices. The results generated by this investigation are both theoretical and empirical in nature. The theoretical contribution made by this dissertation to the literature of financial economics consists of a more general explanation (than the existing one) about how risk aversion on the part of economic agents may cause asset prices to exhibit greater time-varying variance than when economic agents are less risk averse or risk neutral. The empirical contribution made by this dissertation to the literature consists of a detailed experimental analysis of the relationship among risk-aversion, the variance exhibited by the risk premium and time-varying variance (volatility) in asset prices.