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Boyarchenko, Nina; Fuster, Andreas; Lucca, David O. - 2014

Spreads of agency mortgage-backed securities (MBS) vary significantly in the cross section and over time, but the sources of this variation are not well understood. We document that, in the cross section, MBS spreads adjusted for the prepayment option show a pronounced smile with respect to the...

Persistent link: https://www.econbiz.de/10010404146

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

Time-Varying Risk Premiums and Term Premiums in Commodity Futures

Chaves, Denis B. - 2017

Term premiums, defined as the excess return of long-dated contracts over short-dated contracts, in commodity futures are strongly predictable, both in the time series and in the cross section, by roll yield spreads. Strategies that exploit this predictability show sizable Sharpe ratios and are...

Persistent link: https://www.econbiz.de/10012959999

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

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

Arbitrage, Idiosyncratic Risk and the Rationality of Discounts on Closed-End Funds

Gemmill, Gordon - 2011

is an arbitrage cap on its premium resulting from new issues. This censors the distribution of the premium and causes its …

Persistent link: https://www.econbiz.de/10013128561

Chapter 10 Arbitrage, state prices and portfolio theory

Dybvig, Philip H.; Ross, Stephen A. - 2003

equivalence of absence of arbitrage, the existence of a positive linear pricing rule, and the existence of an optimum for some …

Persistent link: https://www.econbiz.de/10014023861

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