Download or read book Subjective Model Uncertainty Variance Risk Premium and Speculative Trading written by Ming Guo and published by . This book was released on 2019 with total page 59 pages. Available in PDF, EPUB and Kindle. Book excerpt: Motivated by a novel empirical finding that variance risk premium (VRP) predicts trading volume, we analyze an asset pricing model where agents are initially uncertain about their subjective models for interpreting public news announcements. Such a setting is micro-founded by ambivalence in psychology and obtains closed-form solutions. Our model explains the negative uncertainty premium in options and endogenously generates VRP. In particular, the initial uncertainty about signal precision (mean) sharply predicts that options and VRP are unspanned (spanned) and that VRP negatively (positively) predicts future trading volume.

Download or read book Real Time Learning Macroeconomic Uncertainty and the Variance Risk Premium written by Daniele Bianchi and published by . This book was released on 2015 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: The variance risk premium represents the compensation paid to index option sellers for the risk of losses following upward movements in realized market return volatility. Common wisdom connects these spikes with elevated uncertainty on economic fundamentals. I incorporate this link within a single-agent general equilibrium model, embedding real-time learning on state variables and parameters. I show that infrequent, large and relatively transitory macroeconomic uncertainty shocks produce a sizable and volatile variance risk premium. These shocks coincide with major events such as the LTCM/Russian crisis, the onset of the second Gulf War, and the great financial crisis of 2008-2009. I compute macroeconomic uncertainty as the dispersion of the agent's belief about the expected growth rate of consumption. Its time-varying nature reflects in the variance risk premium, generating short-term predictability for market excess returns, consistent with the data. In addition, the model matches the higher order moments of the realized equity premium, with a reasonably low level of relative risk aversion equal to five. I finally provide evidence that parameter uncertainty may represent an extra-source of risk which is priced in equilibrium. In fact, a model with parameter learning and standard CRRA preferences, matches around half of the historical variance risk premium.

Download or read book The Variance Risk Premium and Fundamental Uncertainty written by Christian Conrad 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 Variance Risk Premium in Equilibrium Models written by Geert Bekaert and published by . This book was released on 2020 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: The equity variance risk premium is the expected compensation earned for selling variance risk in equity markets. The variance risk premium is positive and shows moderate persistence. High variance risk premiums coincide with the left tail of the consumption growth distribution shifting down. These facts, together with a positive, yet moderate, difference between the risk-neutral entropy and variance of the aggregate market return, refute the bulk of the extant consumption-based asset pricing models. We introduce a tractable habit model that does fit the data. In the model, the variance risk premium depends positively (negatively) on "bad" ("good") consumption growth uncertainty.

Download or read book Model Uncertainty Ambiguity Premium and Optimal Asset Allocation written by Yuhong Xu and published by . This book was released on 2016 with total page 22 pages. Available in PDF, EPUB and Kindle. Book excerpt: In this paper I investigate financial markets with drift and volatility uncertainties. Appropriate definitions of arbitrage for super and sub-hedging strategies are presented such that the super and sub-hedging prices are reasonable. Especially the condition of arbitrage for sub-hedging strategy fills the gap of the theory of arbitrage under model uncertainty. The Profit&Loss (P&L for short) of super(sub)-hedging is derived to be in fact the penalty term K with finite-variance arising in the super(sub)-hedging strategy. The ask-bid spread is hence an accumulation of the superhedging P&L and the subhedging P&L.Asset allocation under constant absolute risk aversion (CARA) utility is investigated with ambiguous volatility and subjective risk premium. I show that ambiguity aversion of a rational individual decreases her market participation. The aggregate premium is computed explicitly which is decomposed into three parts. Opposite signs between the rates of ambiguity premium and risk premium demonstrate that a decrease in ambiguity premium on volatility gives rise to an increase in risk premium.Kelly criterion for the wealth process to reach a goal is also studied under such ambiguous market. Ambiguity of stock appreciation rate results in investors' withdraw from markets whereas in a single-priced market, investors always trade with the market if no short-sale constraints and no transaction cost.

Download or read book Variance Risk Premiums and the Forward Premium Puzzle written by Juan M. Londono and published by . This book was released on 2016 with total page 67 pages. Available in PDF, EPUB and Kindle. Book excerpt: We provide new empirical evidence that world currency and U.S. stock variance risk premiums have nonredundant and significant predictive power for the appreciation rates of twenty-two currencies with respect to the U.S. dollar, especially at the four-month and one-month horizons, respectively. The heterogeneous exposures of currencies to the currency variance risk premium are systematically rising along the line of inflation risk. We rationalize these findings in a consumption-based asset pricing model, with local consumption uncertainty and global inflation uncertainty characterized, respectively, by the stock and currency variance risk premiums.

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 Variance Risk Premium Demystified written by Grigory Vilkov and published by . This book was released on 2008 with total page 32 pages. Available in PDF, EPUB and Kindle. Book excerpt: We study the dynamics and cross-sectional properties of the variance risk premia embedded in options on stocks and indices, approximated by the synthetic variance swap returns. Several important stylized facts and contributions arise. First, variance risk premia for indices are systematically larger (more negative) than for individual securities. Second, there are systematic cross-sectional differences in the price of variance in individual stocks. Linking variance swaps to firm size/book-to-market, and stock turnover characteristics, an investor gains access to several lucrative long-short strategies with Sharpe Ratios around 2.85. Third, principal component analysis reveals at most one important factor driving both stock and variance swap returns, which corresponds to the traditional market factor. For the remainder of the dynamics, the stock and its variance processes are nearly linearly independent. Fourth, we find the leverage effect through analysis of the relationship between the variance risk premium and stock to variance correlation. The systematic (market factor) part of the leverage effect provides additional evidence of the existence of one factor common to both variance swaps and stocks, but the contribution of the market risk premium to the total variance premium is very small. These findings stress the importance of using variance-based instruments in the portfolio of an investor.

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 Efficiency and Anomalies in Stock Markets written by Wing-Keung Wong and published by Mdpi AG. This book was released on 2022-02-17 with total page 232 pages. Available in PDF, EPUB and Kindle. Book excerpt: The Efficient Market Hypothesis believes that it is impossible for an investor to outperform the market because all available information is already built into stock prices. However, some anomalies could persist in stock markets while some other anomalies could appear, disappear and re-appear again without any warning. A Special Issue on "Efficiency and Anomalies in Stock Markets" will be devoted to advancements in the theoretical development of market efficiency and anomaly in the Stock Market, as well as applications in Stock Market efficiency and anomalies.

Download or read book Economic Uncertainty Instabilities And Asset Bubbles Selected Essays written by Anastasios G Malliaris and published by World Scientific. This book was released on 2005-10-03 with total page 373 pages. Available in PDF, EPUB and Kindle. Book excerpt: The compendium of papers in this volume focuses on aspects of economic uncertainty, financial instabilities and asset bubbles.Economic uncertainty is modeled in continuous time using the mathematical techniques of stochastic calculus. A detailed treatment of important topics is provided, including the existence and uniqueness of asymptotic economic growth, the modeling of inflation and interest rates, the decomposition of inflation and its volatility, and the extension of the quantity theory of money to allow for randomness.The reader is also introduced to the methods of chaotic dynamics, and this methodology is applied to asset pricing, the European equity markets, and the multi-fractality in foreign currency markets.Since the techniques of stochastic calculus and chaotic dynamics do not readily accommodate the presence of stochastic bubbles, several papers discuss in depth the presence of financial bubbles in asset prices, and econometric work is performed to link such bubbles to monetary policy.Finally, since bubbles often burst rather than deflate slowly, the last section of the book studies the crash of October 1987 as well as other crashes of national equity markets due to the Persian gulf crisis.

Download or read book International Convergence of Capital Measurement and Capital Standards written by and published by Lulu.com. This book was released on 2004 with total page 294 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Economics of Futures Trading written by B.A. Goss and published by Springer. This book was released on 1976-06-18 with total page 236 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Unequal We Stand written by Jonathan Heathcote and published by DIANE Publishing. This book was released on 2010-10 with total page 61 pages. Available in PDF, EPUB and Kindle. Book excerpt: The authors conducted a systematic empirical study of cross-sectional inequality in the U.S., integrating data from various surveys. The authors follow the mapping suggested by the household budget constraint from individual wages to individual earnings, to household earnings, to disposable income, and, ultimately, to consumption and wealth. They document a continuous and sizable increase in wage inequality over the sample period. Changes in the distribution of hours worked sharpen the rise in earnings inequality before 1982, but mitigate its increase thereafter. Taxes and transfers compress the level of income inequality, especially at the bottom of the distribution, but have little effect on the overall trend. Charts and tables. This is a print-on-demand publication; it is not an original.

Download or read book Risk Analysis and Portfolio Modelling written by Elisa Luciano and published by MDPI. This book was released on 2019-10-16 with total page 224 pages. Available in PDF, EPUB and Kindle. Book excerpt: Financial Risk Measurement is a challenging task, because both the types of risk and the techniques evolve very quickly. This book collects a number of novel contributions to the measurement of financial risk, which address either non-fully explored risks or risk takers, and does so in a wide variety of empirical contexts.

Download or read book Volatility written by Robert A. Jarrow and published by . This book was released on 1998 with total page 472 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.

Download or read book Speculation Trading and Bubbles written by José A. Scheinkman and published by Columbia University Press. This book was released on 2014-07-08 with total page 137 pages. Available in PDF, EPUB and Kindle. Book excerpt: As long as there have been financial markets, there have been bubbles—those moments in which asset prices inflate far beyond their intrinsic value, often with ruinous results. Yet economists are slow to agree on the underlying forces behind these events. In this book José A. Scheinkman offers new insight into the mystery of bubbles. Noting some general characteristics of bubbles—such as the rise in trading volume and the coincidence between increases in supply and bubble implosions—Scheinkman offers a model, based on differences in beliefs among investors, that explains these observations. Other top economists also offer their own thoughts on the issue: Sanford J. Grossman and Patrick Bolton expand on Scheinkman's discussion by looking at factors that contribute to bubbles—such as excessive leverage, overconfidence, mania, and panic in speculative markets—and Kenneth J. Arrow and Joseph E. Stiglitz contextualize Scheinkman's findings.