In this paper, we develop lower bounds on the variance of the permanent component and the transitory component, and on the variance of the ratio of the permanent to the transitory components of SDFs. Exactly solved eigenfunction problems are then used to study the empirical attributes of asset...

The volatilities of Treasury and time deposit markets comove with equity volatility quite heterogeneously over time, with correlations ranging from negative to positive, and marked by periods of rapid movement. What is the price of Treasury volatility or, say, that of the Eurodollar LIBOR? How...

Eurodollar deposit volatility comoves with equity volatility quite heterogeneously over time, with correlations ranging from negative to positive, and marked by periods of rapid movement. What is the price of time deposit volatility? How can we express this price in a model-free format? Despite...

Credit volatility correlates quite modestly with equity volatility. Currently, only backward-looking indexes for credit volatility exist. We derive model-free indexes of expected CDS index spread volatility that rely on CDS index option prices, which re ect the fair value of dedicated credit...

While CBOE's VIX index is widely acknowledged as a broad-based investor “fear gauge” for its strong inverse relationship with major equity indexes, one cannot necessarily expect it to translate to the level of future turbulence or investor risk aversion in fixed-income markets. Indeed,...

Treasury price volatility comoves with equity volatility quite heterogeneously over time, with correlations ranging from negative to positive, and marked by periods of rapid movement. What is the price of Treasury volatility? How can we express this price in a model-free format? Despite the...

This empirical study analyzes the information and predictive content of the Baltic Dry Index (BDI) with respect to a range of financial assets and the macroeconomy. By using panel methodological approaches and daily data spanning the period 1985–2012, the empirical analysis documents the joint...

This paper presents a welfare analysis of several capital insurance programs in a rational expectation equilibrium setting. We first explicitly characterize the equilibrium of each capital insurance program. Then, we demonstrate that a capital insurance program based on aggregate loss is better...

We show that liquidity risk is priced in the cross section of returns on credit default swaps (CDSs). We measure CDS market illiquidity by aggregating deviations of credit index levels from their no-arbitrage values implied by the index constituents' CDS spreads, and we construct a tradable...

We introduce the class of linear-rational term structure models in which the state price density is modeled such that bond prices become linear-rational functions of the factors. This class is highly tractable with several distinct advantages: i) ensures nonnegative interest rates, ii) easily...