We consider the patterns in the predictability of interest rates expectations hypothesis (EH), and attempt to account for them with affine models. We make the following points: (i) Discrepancies in the data from the EH take a particularly simple form with forward rates: as theory suggests, the...

We study the validity of uncovered interest-rate parity by constructing ultra-long time series that span two centuries. The forward-premium regressions yield positive slope estimates over the whole sample. The estimates become negative only when the sample is dominated by the period of 1980s. We...

This paper investigates the significance of an intertemporal relation between expected returns on countries' stock market portfolios and their risk exposures to the world market portfolio. We find that the intertemporal risk-return relation differs significantly under different currency...

This paper analyzes the S&P 500 index return variance dynamics and the variance risk premium by combining information in variance swap rates constructed from options and quadratic variation estimators constructed from tick data on S&P 500 index futures. Estimation shows that the index return...

From a large array of economic and financial data series, this paper identifies three fundamental risk dimensions underlying an economy: inflation, real output growth, and financial market volatility. Furthermore, through a no-arbitrage model, the paper links the dynamics and market pricing of...

We exploit the information in the options market to study the variations of return risk and market prices of different sources of risk during the rise and fall of the Nasdaq market. We specify a model that accommodates fluctuations in both risk levels and market prices of different sources of...

We propose a dynamically consistent framework that allows joint valuation and estimation of stock options and credit default swaps written on the same reference company. We model default as controlled by a Cox process with a stochastic arrival rate. When default occurs, the stock price drops to...

This paper performs specification analysis on the term structure of variance swap rates on the S&P 500 index and studies the optimal investment decision on the variance swaps and the stock index. The analysis identifies 2 stochastic variance risk factors, which govern the short and long end of...

Working in a single-factor Markovian setting, this article derives a new, static spanning relation between a given option and a continuum of shorter-term options written on the same asset. Compared to dynamic delta hedge, which breaks down in the presence of large random jumps, the static hedge...

This paper examines the interaction between default risk and interest-rate risk in determining the term structure of credit default swap spreads at different industry sectors and credit-rating classes. The paper starts with a parsimonious three-factor interest-rate dynamic term structure and...