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Author: Ehud I. Ronn Publisher: ISBN: Category : Languages : en Pages :
Book Description
In this paper, we examine the relationship between expected excess returns and volatilities implied by options on interest rate-dependent securities, and estimate the market price of interest rate risk. If the short-term riskless rate of interest follows a one-factor lto process, then the instantaneous expected excess return on any derivative security, whose payoff is a function only of the riskless rate and time, is proportional to the instantaneous standard deviation of returns on that security. Therefore, interest rate-dependent securities with higher volatility should, on average, earn proportionally higher excess returns. We test this hypothesis using price data on Coupon-STRIPS and implied volatility data from futures options on various U.S. Treasury securities and Eurodollars. We also estimate the ratio of the expected excess returns to the volatility of returns--denoted the market price of interest rate risk--using several estimation techniques. We find that there is, indeed, a positive relationship between expected excess returns and volatility, and that interest rate risk is rewarded in the marketplace. Implied volatility may, therefore, be used as a weak market-timing signal.
Author: Ehud I. Ronn Publisher: ISBN: Category : Languages : en Pages :
Book Description
In this paper, we examine the relationship between expected excess returns and volatilities implied by options on interest rate-dependent securities, and estimate the market price of interest rate risk. If the short-term riskless rate of interest follows a one-factor lto process, then the instantaneous expected excess return on any derivative security, whose payoff is a function only of the riskless rate and time, is proportional to the instantaneous standard deviation of returns on that security. Therefore, interest rate-dependent securities with higher volatility should, on average, earn proportionally higher excess returns. We test this hypothesis using price data on Coupon-STRIPS and implied volatility data from futures options on various U.S. Treasury securities and Eurodollars. We also estimate the ratio of the expected excess returns to the volatility of returns--denoted the market price of interest rate risk--using several estimation techniques. We find that there is, indeed, a positive relationship between expected excess returns and volatility, and that interest rate risk is rewarded in the marketplace. Implied volatility may, therefore, be used as a weak market-timing signal.
Author: Mr.A. Javier Hamann Publisher: International Monetary Fund ISBN: 1451961774 Category : Business & Economics Languages : en Pages : 28
Book Description
This paper examines the comovement in emerging market bond returns and disentangles the influence of external and domestic factors. The conceptual framework, set in the context of asset allocation, allows us to describe the channels through which shocks originating in a particular emerging or mature market are transmitted across countries and markets. We show that using a simple measure of cross-country correlations together with the commonly used average correlation coefficient can be more informative during episodes of heightened market instability. Data for the period 1997-2008 are analyzed for evidence of true contagion and common external shocks.
Author: John C. Cox Publisher: Prentice Hall ISBN: Category : Business & Economics Languages : en Pages : 518
Book Description
Includes the first published detailed description of option exchange operations, the first published treatment using only elementary mathematics and the first step-by-step procedure for implementing the Black-Scholes formula in actual trading.
Author: David Lando Publisher: Princeton University Press ISBN: 1400829194 Category : Business & Economics Languages : en Pages : 328
Book Description
Credit risk is today one of the most intensely studied topics in quantitative finance. This book provides an introduction and overview for readers who seek an up-to-date reference to the central problems of the field and to the tools currently used to analyze them. The book is aimed at researchers and students in finance, at quantitative analysts in banks and other financial institutions, and at regulators interested in the modeling aspects of credit risk. David Lando considers the two broad approaches to credit risk analysis: that based on classical option pricing models on the one hand, and on a direct modeling of the default probability of issuers on the other. He offers insights that can be drawn from each approach and demonstrates that the distinction between the two approaches is not at all clear-cut. The book strikes a fruitful balance between quickly presenting the basic ideas of the models and offering enough detail so readers can derive and implement the models themselves. The discussion of the models and their limitations and five technical appendixes help readers expand and generalize the models themselves or to understand existing generalizations. The book emphasizes models for pricing as well as statistical techniques for estimating their parameters. Applications include rating-based modeling, modeling of dependent defaults, swap- and corporate-yield curve dynamics, credit default swaps, and collateralized debt obligations.
Author: John Hull Publisher: Pearson Higher Education AU ISBN: 1486013686 Category : Business & Economics Languages : en Pages : 577
Book Description
This first Australasian edition of Hull’s bestselling Fundamentals of Futures and Options Markets was adapted for the Australian market by a local team of respected academics. Important local content distinguishes the Australasian edition from the US edition, including the unique financial instruments commonly traded on the Australian securities and derivatives markets and their surrounding conventions. In addition, the inclusion of Australasian and international business examples makes this text the most relevant and useful resource available to Finance students today. Hull presents an accessible and student-friendly overview of the topic without the use of calculus and is ideal for those with a limited background in mathematics. Packed with numerical examples and accounts of real-life situations, this text effectively guides students through the material while helping them prepare for the working world. For undergraduate and post-graduate courses in derivatives, options and futures, financial engineering, financial mathematics, and risk management.
Author: Robert A. Jarrow Publisher: ISBN: Category : Derivative securities Languages : en Pages : 472
Book Description
Written by a number of authors, this text is aimed at market practitioners and applies the latest stochastic volatility research findings to the analysis of stock prices. It includes commentary and analysis based on real-life situations.
Author: Thanasis Stengos Publisher: MDPI ISBN: 3038979643 Category : Business & Economics Languages : en Pages : 224
Book Description
The present Special Issue collects a number of new contributions both at the theoretical level and in terms of applications in the areas of nonparametric and semiparametric econometric methods. In particular, this collection of papers that cover areas such as developments in local smoothing techniques, splines, series estimators, and wavelets will add to the existing rich literature on these subjects and enhance our ability to use data to test economic hypotheses in a variety of fields, such as financial economics, microeconomics, macroeconomics, labor economics, and economic growth, to name a few.
Author: Jian Chen Publisher: Springer ISBN: 9811074283 Category : Business & Economics Languages : en Pages : 163
Book Description
This book mainly addresses the general equilibrium asset pricing method in two aspects: option pricing and variance risk premium. First, volatility smile and smirk is the famous puzzle in option pricing. Different from no arbitrage method, this book applies the general equilibrium approach in explaining the puzzle. In the presence of jump, investors impose more weights on the jump risk than the volatility risk, and as a result, investors require more jump risk premium which generates a pronounced volatility smirk. Second, based on the general equilibrium framework, this book proposes variance risk premium and empirically tests its predictive power for international stock market returns.
Author: Ehud I. Ronn
Author: Ehud I. Ronn
Author: 
Author: Mr.A. Javier Hamann
Author: John C. Cox
Author: David Lando
Author: Jens Carsten Jackwerth
Author: John Hull
Author: Robert A. Jarrow
Author: Thanasis Stengos
Author: Jian Chen