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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 … constituents' CDS spreads, and we construct a tradable liquidity factor from returns on index arbitrage strategies. CDS contracts … with higher liquidity exposures have higher expected excess returns for sellers of credit protection and trade with wider …

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

Discrete-time option pricing with stochastic liquidity

Leippold, Markus; Schärer, Steven - 2016

Classical option pricing theories are usually built on the law of one price, neglecting the impact of market liquidity … liquidity model, extending the discrete-time constant liquidity model of Madan (2010). With this extension, we can replicate the … stochastic liquidity model within our framework using multidimensional binomial trees and we calibrate it to call and put options …

Persistent link: https://www.econbiz.de/10011515968

Corporate investment and financing under asymmetric information

Morellec, Erwan; Schürhoff, Norman - 2010 - This version March 2010

We develop a dynamic model of corporate investment and financing decisions in which corporate insiders have superior information about the firm's growth prospects. We show that firms with positive private information can credibly signal their type to outside investors using the timing of...

Persistent link: https://www.econbiz.de/10003970296

Is the price kernel monotone?

Barone-Adesi, Giovanni; Dall'O, Hakim - 2010

We provide a new method to derive the state price density per unit probability based on option prices and GARCH model. We derive the risk neutral distribution using the result in Breeden and Litzenberger (1978) and the historical density adapting the GARCH model of Barone-Adesi, Engle, and...

Persistent link: https://www.econbiz.de/10003973040

Realizing smiles: pricing options with realized volatility

Corsi, Fulvio; Fusari, Nicola; Vecchia, Davide la - 2010

We develop a discrete-time stochastic volatility option pricing model, which exploits the information contained in high-frequency data. The Realized Volatility (RV) is used as a proxy of the unobservable log-returns volatility. We model its dynamics by a simple but effective (pseudo) long memory...

Persistent link: https://www.econbiz.de/10003973052

Conditional density models for asset pricing

Filipović, Damir; Hughston, Lane P.; Macrina, Andrea - 2010

We model the dynamics of asset prices and associated derivatives by consideration of the dynamics of the conditional probability density process for the value of an asset at some specified time in the future. In the case where the asset is driven by Brownian motion, an associated "master...

Persistent link: https://www.econbiz.de/10008797695

Semi-parametric estimation of American option prices

Gagliardini, Patrick; Ronchetti, Diego - 2010

We introduce a novel semi-parametric estimator of the price of American options in a discrete time, Markovian framework. The estimator is based on a parametric specification of the stochasticdiscount factor and is non-parametric w.r.t. the historical dynamics of the state variables. The...

Persistent link: https://www.econbiz.de/10008798293

Martingale representation theorem for the G-expectation

Soner, Halil Mete; Touzi, Nizar; Jianfeng Zhang - 2010

This paper considers the nonlinear theory of G-martingales as introduced by Peng in [16, 17]. A martingale representation theorem for this theory is proved by using the techniques and the results established in [20] for the second order stochastic target problems and the second order backward...

Persistent link: https://www.econbiz.de/10008798300

Liquidity models in continuous and discrete time

Gökay, Selim; Roch, Alexandre F.; Soner, Halil Mete - 2010

We survey several models of liquidity and liquidity related problems such as optimal execution of a large order …

Persistent link: https://www.econbiz.de/10008798305

Background filtrations and canonical loss processes for top-down models of portfolio credit risk

Ehlers, Philippe (contributor); … - 2007

In single-obligor default risk modelling, using a background filtration in conjunction with a suitable embedding hypothesis (generally known as H-hypothesis or immersion property) has proven a very successful tool to separate the actual default event from the model for the default arrival...

Persistent link: https://www.econbiz.de/10003549840

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