This paper identifies new currency risk stemming from a network of idiosyncratic option-based currency volatilities and shows how such network risk is priced in the cross-section of currency returns. A portfolio that buys net-receivers and sells net-transmitters of short-term linkages between...

We examine implications of introducing parameter uncertainty in endowment and production economies for index option premiums. We estimate two-state models of consumption and productivity growth using post-war U.S. data and allow for rational learning about unknown persistence of economic growth....

We propose a Markov Switching Graphical Seemingly Unrelated Regression (MS-GSUR) model to investigate time-varying systemic risk based on a range of multi-factor asset pricing models. Methodologically, we develop a Markov Chain Monte Carlo (MCMC) scheme in which latent states are identified on...

I investigate the relationship between carry trades and tail risk for a panel of commodity futures contracts. Unlike other asset classes, carry in commodities is highly volatile both in the time series and in the cross section. By using a panel quantile regression with commodity fixed effect, I...

The variance risk premium represents the compensation paid to index option sellers for the risk of losses following upward movements in realized market return volatility. Common wisdom connects these spikes with elevated uncertainty on economic fundamentals. I incorporate this link within a...