This paper provides implied measures of higher-order dependencies between assets. The measures exploit only forward-looking information from the options market and can be used to construct an implied estimator of the covariance, co-skewness, and co-kurtosis matrices of asset returns. We...

Purpose – The purpose of this paper is to use the local correlation technique to measure flight to quality, which is defined as a pronounced and generally rapid increase in risk aversion. Flight to quality between American, British, German, Japanese, and Hong Kong spot equity indices and index...

We investigate risk averse agents who manage risk by trading financial securities in a market that we call a risk market. We assume this market is perfectly competitive and complete. When risk aversion is expressed using risk measures, the (bundle of) prices for financial securities turns out to...

I construct a systemic liquidity risk index (SLRI) from data on violations of arbitrage relationships across several asset classes between 2004 and 2010. Then I test whether the equity returns of 53 global banks were exposed to this liquidity risk factor. Results show that the level of bank...

I construct a systemic liquidity risk index (SLRI) from data on violations of arbitrage relationships across several asset classes between 2004 and 2010. Then I test whether the equity returns of 53 global banks were exposed to this liquidity risk factor. Results show that the level of bank...

I propose a simple framework that quantifies the stance of monetary policy as a 'shadow short rate' when the term structure is near the zero lower bound. I demonstrate my framework with a one-factor model applied to Japanese data, including an intuitive economic interpretation of the results,...

A model-based assessment of credit risk is subject to both specification and calibration errors. Focusing on a well known credit risk model, we propose a methodology for quantifying the relative importance of alternative sources of such errors and apply this methodology to a large data set. We...

Headline inflation in most industrialized countries, the US in particular, has been shown to be mean reverting to core inflation in the medium term, whilst at the same time the pass-through of exogenous commodity price shocks from the headline to the core has dramatically gone down as a result...

Implied volatility and other forward-looking measures of option-implied uncertainty help investors carefully evaluate market sentiment and expectations. We construct several measures of implied uncertainty in European government bond futures. In the first part, we create new volatility indices,...