Download or read book Bond Variance Risk Premiums written by Hoyong Choi and published by . This book was released on 2016 with total page 58 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper studies variance risk premiums in the Treasury market. We first develop a theory to price variance swaps and show that the realized variance can be perfectly replicated by a static position in Treasury futures options and a dynamic position in the underlying. Pricing and hedging is robust even if the underlying jumps. Using a large options panel data set on Treasury futures with different tenors, we report the following findings: First, the term structure of implied variances is downward sloping across maturities and increases in tenors. Moreover, the slope of the term structure is strongly linked to economic activity. Second, returns to the Treasury variance swap are negative and economically large. Shorting a variance swap produces an annualized Sharpe ratio of almost two and the associated returns cannot be explained by standard risk factors. Finally, the returns remain highly statistically significant even when accounting for transaction costs and margin requirements.
Download or read book Bond Variance Risk Premia written by Philippe Mueller and published by . This book was released on 2012 with total page 51 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Sources of Time Varying Risk and Risk Premia in U S Stock and Bond Markets written by Bala Arshanapalli and published by . This book was released on 2003 with total page 48 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper investigates the sources of time-varying risk and risk premia for both the U.S. stock and bond markets. Although a growing literature has emerged that examines the return and volatility characteristics of the U.S. stock and bond markets separately, little work has appeared that models these markets jointly. This paper proposes a model that provides evidence concerning the sources of time varying risk and risk premia in the markets that considers both markets simultaneously. The model captures the change in the risk premium to each market's own volatility risk as well as to the covariance risk for specific events. We test for the effects of macroeconomic news on time-varying volatility as well as time-varying covariance, and whether such news induces time-varying risk premia in either of the markets. We find that stocks, as opposed to bonds exhibit a change in the risk premium on variance risk on PPI announcement dates. There is also evidence of a change in the bond risk premium on covariance risk on macroeconomic news announcement dates. Employment reports and PPI releases appear as events inducing time-varying conditional variance for stock, Treasury Notes, as well as Treasury Bond returns. Finally, the results do not support the conjecture that conditional covariance of stock and bond returns falls on announcement days.
Download or read book Credit Default Swap Spreads and Variance Risk Premia VRP written by Hao Wang and published by DIANE Publishing. This book was released on 2011-04 with total page 43 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book A Global Factor in Variance Risk Premia and Local Bond Pricing written by Iryna Kaminska and published by . This book was released on 2015 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Macroeconomic News Time varying Risk Factors and Time varying Risk Premia written by Alexandre Vézina and published by . This book was released on 2001 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: The basic purpose of this paper is to investigate the sources of time-varying risk premia for both the U.S. stock and bond markets. In addition, we look at the sources of time-varying conditional variance and conditional covariance of these two markets. Although a large literature has emerged on the return and volatility of any of the two markets, few studies propose a model in which both markets are modeled together. Moreover, after all the research done, the reasons explaining the causes of the volatility of any of the two markets remain unclear. What we propose in this paper is a model that considers both markets' volatility simultaneously. Our model captures the change in the risk premium, if any, to each market's own volatility risk as well as to the covariance risk for specific events. More specifically, we investigate if macroeconomic news is a source of time-varying volatility as well as time-varying covariance, and whether these results in time-varying risk premia in either of the markets. We find that stocks, as opposed to bonds, mainly exhibit a change in the risk premium on variance risk. The results suggest that most of the change is due to the PPI announcements. Our models also indicate that there is a change in the bond risk premium on covariance risk on macroeconomic news announcement dates. Finally, linear regressions show that employment reports and PPI releases are a source of time-varying conditional variance for stock, notes and bond returns.
Download or read book Variance Risk Premia Asset Predictability Puzzles and Macroeconomic Uncertainty written by Hao Zhou and published by . This book was released on 2018 with total page 29 pages. Available in PDF, EPUB and Kindle. Book excerpt: This article reviews the predictability evidence on the variance risk premium: ( a) It predicts significant positive risk premia across equity, bond, currency, and credit markets; ( b) the predictability peaks at few-month horizons and dies out afterward; ( c) such a short-run predictability is complementary to the long-run predictability offered by the price-to-earnings ratio, forward rate, interest differential, and leverage ratio. Several structural approaches based on the notion of economic uncertainty are discussed for generating these stylized facts about the variance risk premium, which has broad implications for various empirical asset pricing puzzles.
Download or read book Time Varying Risk Premia in Corporate Bond Markets written by Redouane Elkamhi and published by . This book was released on 2008 with total page 50 pages. Available in PDF, EPUB and Kindle. Book excerpt: We study the link between corporate bond risk premia and equity returns in a large panel of corporate bond transaction data. In contrast to previous work, we find that a significant part of the time variation in bond risk premia can be explained by equity implied bond risk premium estimates. We also document a large time variation in the expected loss component of bond spreads. This component is related to total asset volatility, whereas the risk premium is related to systematic volatility. In addition, we show by means of linear regressions that augmenting the set of variables predicted by typical structural models with equity-implied bond default risk premia significantly increases explanatory power.
Download or read book The Price of Fixed Income Market Volatility written by Antonio Mele and published by Springer. This book was released on 2016-01-11 with total page 259 pages. Available in PDF, EPUB and Kindle. Book excerpt: Fixed income volatility and equity volatility evolve heterogeneously over time, co-moving disproportionately during periods of global imbalances and each reacting to events of different nature. While the methodology for options-based "model-free" pricing of equity volatility has been known for some time, little is known about analogous methodologies for pricing various fixed income volatilities. This book fills this gap and provides a unified evaluation framework of fixed income volatility while dealing with disparate markets such as interest-rate swaps, government bonds, time-deposits and credit. It develops model-free, forward looking indexes of fixed-income volatility that match different quoting conventions across various markets, and uncovers subtle yet important pitfalls arising from naïve superimpositions of the standard equity volatility methodology when pricing various fixed income volatilities.
Download or read book Credit Risk Modeling written by David Lando and published by Princeton University Press. This book was released on 2009-12-13 with total page 328 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.
Download or read book The Price of Interest Rate Variance Risk and Optimal Investments in Interest Rate Derivatives written by Anders B. Trolle and published by . This book was released on 2011 with total page 54 pages. Available in PDF, EPUB and Kindle. Book excerpt: Recent research on unspanned stochastic variance raises the possibility that interest rate derivatives constitute an important component of optimal fixed income portfolios. In this paper, I estimate a flexible dynamic term structure model that allows for unspanned stochastic variance on an extensive data set of swaps and swaptions. I find that variance risk is predominantly unspanned by bonds, and that the price of risk on the unspanned variance factor is significantly larger in absolute value than the prices of risk on the term structure factors. Consequently, Sharpe ratios on variance sensitive derivatives are about three times larger than Sharpe ratios on bonds or short-term bond futures. These findings are corroborated by an analysis of the Treasury futures market, where the variance risk premium is estimated with a model independent approach. I then solve the dynamic portfolio choice problem for a long-term fixed income investor with and without access to interest rate derivatives and find substantial utility gains from participating in the derivatives market.
Download or read book Volatility and Jump Risk Premia in Emerging Market Bonds written by John Matovu and published by International Monetary Fund. This book was released on 2007-07 with total page 32 pages. Available in PDF, EPUB and Kindle. Book excerpt: There is strong evidence that interest rates and bond yield movements exhibit both stochastic volatility and unanticipated jumps. The presence of frequent jumps makes it natural to ask whether there is a premium for jump risk embedded in observed bond yields. This paper identifies a class of jump-diffusion models that are successful in approximating the term structure of interest rates of emerging markets. The parameters of the term structure of interest rates are reconciled with the associated bond yields by estimating the volatility and jump risk premia in highly volatile markets. Using the simulated method of moments (SMM), results suggest that all variants of models which do not take into account stochastic volatility and unanticipated jumps cannot generate the non-normalities consistent with the observed interest rates. Jumps occur (8,10) times a year in Argentina and Brazil, respectively. The size and variance of these jumps is also of statistical significance.
Download or read book Downside Variance Risk Premium written by Bruno Feunou and published by . This book was released on 2015 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book The Equity Risk Premium written by William N. Goetzmann and published by Oxford University Press. This book was released on 2006-11-16 with total page 568 pages. Available in PDF, EPUB and Kindle. Book excerpt: What is the return to investing in the stock market? Can we predict future stock market returns? How have equities performed over the last two centuries? The authors in this volume are among the leading researchers in the study of these questions. This book draws upon their research on the stock market over the past two dozen years. It contains their major research articles on the equity risk premium and new contributions on measuring, forecasting, and timing stock market returns, together with new interpretive essays that explore critical issues and new research on the topic of stock market investing. This book is aimed at all readers interested in understanding the empirical basis for the equity risk premium. Through the analysis and interpretation of two scholars whose research contributions have been key factors in the modern debate over stock market perfomance, this volume engages the reader in many of the key issues of importance to investors. How large is the premium? Is history a reliable guide to predict future equity returns? Does the equity and cash flows of the market? Are global equity markets different from those in the United States? Do emerging markets offer higher or lower equity risk premia? The authors use the historical performance of the world's stock markets to address these issues.
Download or read book Bond Risk Premia and Realized Jump Volatility written by Jonathan H. Wright and published by . This book was released on 2007 with total page 64 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book The Volatility of Long term Bond Returns written by Daniela Osterrieder and published by . This book was released on 2012 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book The Cyclical Variation of Junk Bond Risk Premiums in a Historical Perspective written by Peter F. Basile and published by . This book was released on 1989 with total page 776 pages. Available in PDF, EPUB and Kindle. Book excerpt:
