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The Shape and Term Structure of the Index Option Smirk: Why Multifactor Stochastic Volatility Models Work so Well
Christoffersen, Peter; Heston, Steven; Jacobs, Kris - School of Economics and Management, University of Aarhus - 2009
State-of-the-art stochastic volatility models generate a "volatility smirk" that explains why out-of-the-money index puts have high prices relative to the Black-Scholes benchmark. These models also adequately explain how the volatility smirk moves up and down in response to changes in risk....
Persistent link: https://www.econbiz.de/10005037435
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Conservatism in Corporate Valuation
Bach, Christian - School of Economics and Management, University of Aarhus - 2011
Using a CCAPM based risk adjustment model, consistent with general asset pricing theory, I perform corporate valuations … based on the results of the respective models. The CCAPM model performs substantially better than the CAPM based model when … investment strategies, but also in this setting the CCAPM model outperforms the CAPM model in most dimensions. I further show …
Persistent link: https://www.econbiz.de/10009293656
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Habit-based Asset Pricing with Limited Participation Consumption
Bach, Christian; Møller, Stig Vinther - School of Economics and Management, University of Aarhus - 2010
non-assetholder consumption, as well as the standard aggregate consumption series commonly used in the CCAPM literature …
Persistent link: https://www.econbiz.de/10008509120
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Stock Return and Cash Flow Predictability: The Role of Volatility Risk
Bollerslev, Tim; Xu, Lai; Zhou, Hao - School of Economics and Management, University of Aarhus - 2012
We examine the joint predictability of return and cash flow within a present value framework, by imposing the implications from a long-run risk model that allow for both time-varying volatility and volatility uncertainty. We provide new evidence that the expected return variation and the...
Persistent link: https://www.econbiz.de/10010851207
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Cross-sectional consumption-based asset pricing: The importance of consumption timing and the inclusion of severe crises
Engsted, Tom; Møller, Stig V. - School of Economics and Management, University of Aarhus - 2011
By using a beginning-of-period timing convention for consumption, and by including the Great Depression years in the analysis, we show that on annual data from 1926 to 2009 a standard contemporaneous consumption risk model goes a long way in explaining the size and value premiums in...
Persistent link: https://www.econbiz.de/10008836604
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Parametric Inference and Dynamic State Recovery from Option Panels
Andersen, Torben G.; Fusari, Nicola; Todorov, Viktor - School of Economics and Management, University of Aarhus - 2011
We develop a new parametric estimation procedure for option panels observed with error which relies on asymptotic approximations assuming an ever increasing set of observed option prices in the moneyness-maturity (cross-sectional) dimension, but with a fixed time span. We develop consistent...
Persistent link: https://www.econbiz.de/10010851195
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Illiquidity Premia in the Equity Options Market
Christoffersen, Peter; Goyenko, Ruslan; Jacobs, Kris; … - School of Economics and Management, University of Aarhus - 2013
Illiquidity is well-known to be a significant determinant of stock and bond returns. We report on illiquidity premia in the equity options market. An increase in option illiquidity decreases the current option price and implies higher expected option returns. This effect is statistically and...
Persistent link: https://www.econbiz.de/10010851197
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Risk of Rare Disasters, Euler Equation Errors and the Performance of the C-CAPM
Posch, Olaf; Schrimpf, Andreas - School of Economics and Management, University of Aarhus - 2012
This paper shows that the consumption-based asset pricing model (C-CAPM) with low-probability disaster risk … that leading asset pricing models cannot explain sizeable pricing errors in the C-CAPM. We also show (analytically and in a …
Persistent link: https://www.econbiz.de/10010851201
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Dynamic Diversification in Corporate Credit
Christoffersen, Peter; Jacobs, Kris; Jin, Xisong; … - School of Economics and Management, University of Aarhus - 2013
We characterize diversification in corporate credit using a new class of dynamic copula models which can capture dynamic dependence and asymmetry in large samples of firms. We also document important differences between credit spread and equity return dependence dynamics. Modeling a decade of...
Persistent link: https://www.econbiz.de/10010851205
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Macro-Finance Determinants of the Long-Run Stock-Bond Correlation: The DCC-MIDAS Specification
Asgharian, Hossein; Christiansen, Charlotte; Hou, Ai Jun - School of Economics and Management, University of Aarhus - 2014
We investigate the long-run stock-bond correlation using a novel model that combines the dynamic conditional correlation model with the mixed-data sampling approach. The long-run correlation is affected by both macro-finance variables (historical and forecasts) and the lagged realized...
Persistent link: https://www.econbiz.de/10010851206