Previous research concludes that options are mispriced based on the high average returns, CAPM alphas, and Sharpe ratios of various put selling strategies. One criticism of these conclusions is that these benchmarks are ill suited to handle the extreme statistical nature of option returns...

Previous research concludes that options are mispriced based on the high average returns, CAPM alphas, and Sharpe ratios of various put selling strategies. One criticism of these conclusions is that these benchmarks are ill suited to handle the extreme statistical nature of option returns...

We propose two metrics for asset pricing models and apply them to representative agent models with recursive preferences, habits, and jumps. The metrics describe the pricing kernel's dispersion (the entropy of the title) and dynamics (time dependence, a measure of how entropy varies over...

We propose two metrics for asset pricing models and apply them to representative agent models with recursive preferences, habits, and jumps. The metrics describe the pricing kernel’s dispersion (the entropy of the title) and dynamics (time dependence, a measure of how entropy varies over...

We use prices of equity index options to quantify the impact of extreme events on asset returns. We define extreme events as departures from normality of the log of the pricing kernel and summarize their impact with high-order cumulants: skewness, kurtosis, and so on. We show that high-order...

We determine which macroeconomic variables other than inflation and real activity drive the yield curve using a no-arbitrage affine term structure models. We construct a model-based dynamic projection of all the latent factors onto the observable macro factors, which are real activity and...

We evaluate the ability of several affine models to explain the term structure of the interest rates and option prices. Since the key distinguishing characteristic of the affine models is the specification of conditional volatility of the factors, we explore models which have critical...

The depreciation rate is often computed as the ratio of foreign and domestic pricing kernels. Using bond prices alone to estimate these kernels leads to currency puzzles: the inability of models to match violations of uncovered interest parity and the volatility of exchange rates. One cannot use...

This paper examines the dynamic properties of Asia-Pacific local currency sovereign bond yields and risk premiums. We focus, in particular, on the properties and interactions of components of bond risk premiums that are due to credit spreads and exchange rates. We find that local variables are...

We explore the term structures of claims to a variety of cash flows: U.S. government bonds (claims to dollars), foreign government bonds (claims to foreign currency), inflation-adjusted bonds (claims to the price index), and equity (claims to future equity indexes or dividends). Average term...