This paper studies the impact of counter-party default risk of forward contracts on a firm's production and hedging decisions. Using a model of a risk-averse competitive firm under price uncertainty, it derives several fundamental results. If expected profits from forward contracts are zero, the...

This paper investigates the dynamics of the term structure of bond market illiquidity premia using data on German bond market segments which differ only with respect to their liquidity. We analyze the interaction between different parts of the term structure and identify economic factors that...

Many firms face product price risk in foreign currency, uncertain costs in home currency and exchange rate risk. If prices and exchange rates in different countries interact, natural hedges of foreign exchange risk might result. If the effectiveness of such hedges depends on the hedge horizon,...

We develop and empirically test a continuous time equilibrium model for the pricing of oil futures. The model provides a link between no-arbitrage models and expectation oriented models. It highlights the role of sufficient inventories for oil futures pricing and for the explanation of...

Option-implied betas are a promising alternative to historical beta estimators, because they are inherently forward-looking and can incorporate new information immediately and fully. Recently, different implied beta estimators have been developed in previous literature, but very little is known...

We develop a new family of estimators of the covariance matrix that relies solely on forwardlooking information. It uses only current prices of plain-vanilla options. In an out-of-sample study we show that a minimum-variance strategy based on these fully-implied estimators outperforms several...

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...

This paper analyzes trading strategies designed to exploit the low-beta anomaly. Although the notion of buying low-beta stocks and selling high-beta stocks is natural, a choice is necessary with respect to the relative weighting of high-beta stocks and low-beta stocks in the portfolio. Our...

Over the years, a diverse range of drawdown measures has evolved to guide asset management. We show that almost all of these measures fit into a unified framework. This new framework simplifies the implementation of drawdown measures and improves understanding their similarities and differences....

Derivatives strategies that aim to earn variance risk premiums are exposed to sharp price declines during market crises, calling into question their suitability for the longterm investor. Our paper defines, analyzes, and proposes potential solutions to three problems (payoff, leverage and finite...