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Variance bounds on the permanent and transitory components of stochastic discount factors

Bakshi, Gurdip S.; Chabi-Yo, Fousseni - 2011

In this paper, we develop lower bounds on the variance of the permanent component and the transitory component, and on the variance of the ratio of the permanent to the transitory components of SDFs. Exactly solved eigenfunction problems are then used to study the empirical attributes of asset...

Persistent link: https://www.econbiz.de/10009507305

Stochastic Discount Factor in the Brazilian Equity Market (Fator de Desconto Estocástico no Mercado Acionário Brasileiro) (Portuguese)

Catalão, André Borges - 2010

This article implements the minimum variance frontier for the stochastic discount factor, according to both Hansen and Jagannathan (1991) and Cochrane and Hansen (1992), for the Brazilian stock market. Two approaches are considered in terms of equity returns and equity premium, respectively, the...

Persistent link: https://www.econbiz.de/10013138283

An Asset Pricing Theory of Volatility Tail Behavior

Bakshi, Gurdip - 2012

We contrast two different asset pricing models, where the pricing kernel either (i) increases in the volatility dimension, reflecting investors' aversion to volatility, or (ii) could be non-monotonic in volatility, reflecting heterogeneity in investors' beliefs. The two models yield opposite...

Persistent link: https://www.econbiz.de/10013115088

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

The Cross-Section of Currency Volatility Premia

Della Corte, Pasquale - 2019

We identify a global risk factor in the cross-section of implied volatility returns in currency markets. A zero-cost strategy that buys forward volatility agreements with downward sloping implied volatility curves and sells those with upward slopes - volatility carry strategy - generates...

Persistent link: https://www.econbiz.de/10012902489

Instantaneous Arbitrage and the CAPM

Nielsen, Lars Tyge - 2019

This paper studies the concept of instantaneous arbitrage in continuous time and its relation to the instantaneous CAPM …. Absence of instantaneous arbitrage is equivalent to the existence of a trading strategy which satisfies the CAPM beta pricing … relation in place of the market. Thus the difference between the arbitrage argument and the CAPM argument in Black and Scholes …

Persistent link: https://www.econbiz.de/10012894845

Equilibrium Asset Returns in Financial Markets

Madan, Dilip B. - 2018

Return distributions in the class of pure jump limit laws are observed to reflect numerous asymmetries between the upward and downward motions of asset prices. The return distributions are modeled by self decomposable parametric laws with all parameters continuously responding to each other....

Persistent link: https://www.econbiz.de/10012925532

Risk Factors That Explain Stock Returns : A Non-Linear Factor Pricing Model

Birge, John R. - 2018

The value of an equity investment can be framed as an embedded call option on a firm's assets. The embedded call option creates a non-linear relationship between stock returns and underlying risk factors; however, such option value and the impact of this non-linearity are often underestimated or...

Persistent link: https://www.econbiz.de/10012932321

Systematic Volatility Risk and Its Cross-sectional Determinants

Chakrabarti, Prasenjit; Kotha, Kiran Kumar - 2021

We empirically examine whether investors demand a systemic component of Volatility Risk (VRP-beta) using the stock options traded on National Stock Exchange, India. We document robust evidence on the presence of VRP-beta, which survives even after accounting for the traditional Fama-French...

Persistent link: https://www.econbiz.de/10013238250

Close Form Pricing Formulas for CoCa CoCos

Corcuera, José Manuel - 2015

Contingent Convertibles ("CoCos") are contingent capital instruments which convert into shares, or have a principal write down, if a trigger event takes place. CoCos exhibit the undesirable so-called "death-spiral effect": by actively hedging the equity risk, investors can (unintentionally)...

Persistent link: https://www.econbiz.de/10013036051