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The price of the smile and variance risk premia

Gruber, Peter H.; Tebaldi, Claudio; Trojani, Fabio - 2015 - This version: September 8, 2015

traded in SPX option markets. The price of the smile reflects two persistent volatility and skewness risks, which imply a …

Persistent link: https://www.econbiz.de/10011412294

Ambiguity aversion and the term structure of interest rates

Gagliardini, Patrick; Porchia, Paolo; Trojani, Fabio - 2008

This paper studies the term structure implications of a simple structural economy in which the representative agent displays ambiguity aversion, modeled by Multiple Priors Recursive Utility. Bond excess returns reflect a premium for ambiguity, which is observationally distinct from the risk...

Persistent link: https://www.econbiz.de/10003961717

Time-changed Lévy LIBOR market model for the joint estimation and pricing of caps and swaptions

Leippold, Markus; Stromberg, Jacob - 2012 - This version: May 18, 2012

We propose a novel time-changed L évy LIBOR market model for the joint pricing of caps and swaptions. The time changes are split into three components. The first component allows us to match the volatility term structure, the second generates stochastic volatility, and the third one...

Persistent link: https://www.econbiz.de/10009558358

Managing the risks of corporate bond portfolios : new evidence in the light of the sub‐prime crisis

Barone-Adesi, Giovanni; Carcano, Nicola; Dall'O, Hakim - 2012

We consider modeling errors in the hedging of a portfolio composed from BBB-rated bonds. By doing this, we open a new perspective to the debate on the relationship between corporate bonds and CDS spreads. We find that in ordinary times the added value of indexlinked credit derivatives is very...

Persistent link: https://www.econbiz.de/10009558422

Detecting informed trading activities in the options markets

Chesney, Marc; Crameri, Remo; Mancini, Loriano - 2011

We develop statistical methods to detect informed trading in options markets. We apply these methods to 31 companies … tends to cluster prior to certain events, takes place more in put than call options, generates easily large gains exceeding … millions, is not contemporaneously reflected in the underlying stock price, involves around the money options during calm times …

Persistent link: https://www.econbiz.de/10009314008

Detecting informed trading activities in the options markets : appendix on subprime financial crisis

Chesney, Marc; Crameri, Remo; Mancini, Loriano - 2011

and call options are analyzed for 19 companies in the banking and insurance sectors from January 1996 to September 2009 … activities in put and call options. The realized gains amount to several hundreds of millions of dollars. Several cases are … discussed in detail. options trades, open interest, informed trading, false discovery rate …

Persistent link: https://www.econbiz.de/10009314012

Dynamics of interest rate swap and equity volatilities

Mele, Antonio; Obayashi, Yoshiki; Shalen, Catherine T. - 2013

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,...

Persistent link: https://www.econbiz.de/10009750617

Quadratic variance swap models

Filipović, Damir; Gourier, Elise; Mancini, Loriano - 2013

We introduce a novel class of term structure models for variance swaps. The multivariate state process is characterized by a quadratic diffusion function. The variance swap curve is quadratic in the state variable and available in closed form, greatly facilitating empirical analysis. Various...

Persistent link: https://www.econbiz.de/10009721337

Liquidity risk in credit default swap markets

Junge, Benjamin; Trolle, Anders B. - 2013

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...

Persistent link: https://www.econbiz.de/10010258589

Linear-rational term structure models

Filipović, Damir; Larsson, Martin; Trolle, Anders B. - 2014

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...

Persistent link: https://www.econbiz.de/10010338764