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Arbitrage-free models of stocks and bonds

Durham, J. Benson - 2013

A small but ambitious literature uses affine arbitrage-free models to estimate jointly U.S. Treasury term premiums and …

Persistent link: https://www.econbiz.de/10010222892

Yields versus Expected Returns of Corporate Bonds : Some Unexpected Results

Beliaeva, Natalia - 2019

We derive expected bond return equations for various structural credit valuation models with alternative stochastic processes and boundary conditions for default given in Merton [1974], Merton [1976], Black and Cox [1976], Heston [1993], Longstaff and Schwartz [1995], and Collin-Dufresne and...

Persistent link: https://www.econbiz.de/10012900804

The Pricing of Market Jumps in the Cross-Section of Stocks and Options

Babaoglu, Kadir - 2018

Market index and individual stock returns exhibit jumps in addition to normal shocks. Equities have exposure to the market and sensitivity to the market is important for explaining equity returns and option prices. I develop a new factor model that explores (i) if a separate beta for market...

Persistent link: https://www.econbiz.de/10012936701

Returns of Claims on the Upside and the Viability of U-Shaped Pricing Kernels

Bakshi, Gurdip - 2018

When the pricing kernel is U-shaped, then expected returns of claims with payout on the upside are negative for strikes beyond a threshold, determined by the slope of the U-shaped kernel in its increasing region, and have negative partial derivative with respect to strike in the increasing...

Persistent link: https://www.econbiz.de/10012940716

The Contribution of Frictions to Expected Returns

Hiraki, Kazuhiro - 2020

We document that properly scaled deviations from put-call parity estimate the contribution of market frictions to expected returns (CFER) accurately, by means of a non-parametric theoretically founded identification strategy. The required conditions are that our estimator predicts the underlying...

Persistent link: https://www.econbiz.de/10012852972

Modeling Conditional Factor Risk Premia Implied by Index Option Returns

Fournier, Mathieu; Jacobs, Kris; Orłowski, Piotr - 2021

We propose a novel factor model for option returns. Option exposures are estimated nonparametrically and factor risk premia can vary nonlinearly with states. The model is estimated using regressions, with minimal assumptions on factor and option return dynamics. Using index options, we...

Persistent link: https://www.econbiz.de/10013213854

Arbitrage-Free Models of Stocks and Bonds

Durham, J. Benson - 2014

A small but ambitious literature uses affine arbitrage-free models to estimate jointly U.S. Treasury term premiums and …

Persistent link: https://www.econbiz.de/10013061074

Beta risk in the cross-section of equities

Boloorforoosh, Ali; Christoffersen, Peter F.; Fournier, … - 2017

We develop a conditional capital asset pricing model in continuous-time that allows for stochastic beta exposure. When beta co-moves with market variance and the stochastic discount factor (SDF), beta risk is priced, and the expected return on a stock deviates from the security market line. The...

Persistent link: https://www.econbiz.de/10011646407

Arbitraging Mispriced Assets with Separation Portfolios to Lessen Total Risk

Apreda, Rodolfo - 2009

This paper expands on a procedure to arbitrage mispriced assets against the benchmark provided by the Security Market … least total risk among other alternative portfolios. Coming next, such arbitrage is dealt directly with one single … separation portfolio, which grants that the total risk linked with the arbitrage portfolio equals the non-systematic risk …

Persistent link: https://www.econbiz.de/10013159871

The contribution of frictions to expected returns

Hirakiy, Kazuhiro; Skiadopoulos, George - 2018

We derive a model-free option-based formula to estimate the contribution of market frictions to expected returns (CFER) within an asset pricing setting. We estimate CFER for the U.S. optionable stocks. We document that CFER is sizable, it predicts stock returns and it subsumes the effect of...

Persistent link: https://www.econbiz.de/10011932555

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