Related papers: Priced risk in corporate bonds
This paper extends an option-theoretic approach to estimate liquidity spreads for corporate bonds. Inspired by Longstaff's equity market framework and subsequent work by Koziol and Sauerbier on risk-free zero-coupon bonds, the model views…
Emerging market hard-currency bonds are an asset class of growing importance, and contain exposure to an EM sovereign and the underlying industry. The authors investigate how to model this as a modification of the well-known…
Interest-rate risk is a key factor for property-casualty insurer capital. P&C companies tend to be highly leveraged, with bond holdings much greater than capital. For GAAP capital, bonds are marked to market but liabilities are not, so…
I demonstrate that with the market return determined by the equilibrium returns of the CAPM, expected returns of an asset are affected by the risks of all assets jointly. Another implication is that the range of feasible market returns will…
The equity risk premium puzzle is that the return on equities has far exceeded the average return on short-term risk-free debt and cannot be explained by conventional representative-agent consumption based equilibrium models. We review a…
Because the asset value of a private company does not observable except in quarterly reports, the structural model has not been developed for a private company. For this reason, this paper attempt to develop the Merton's structural model…
We present a new model for commodity pricing that enhances accuracy by integrating four distinct risk factors: spot price, stochastic volatility, convenience yield, and stochastic interest rates. While the influence of these four variables…
We construct Zero-Coupon Bond markets driven by a cylindrical Brownian motion in which the notion of generalized portfolio has important flaws: There exist bounded smooth random variables with generalized hedging portfolios for which the…
In the present paper we fill an essential gap in the Convertible Bonds pricing world by deriving a Binary Tree based model for valuation subject to credit risk. This model belongs to the framework known as Equity to Credit Risk. We show…
We investigate whether the tails of firm-level idiosyncratic return distributions are driven by common shocks. We use quantile factor analysis to extract such common idiosyncratic quantile factors with asymmetric pricing effects and we find…
We identify a new type of risk, common firm-level investor fears, from commonalities within the cross-sectional distribution of individual stock options. We define firm-level fears that link with upward price movements as good fears, and…
In this three-part series of papers, we argue that the conventional spread measures are not well defined for credit-risky bonds and introduce a set of credit term structures which correct for the biases associated with the strippable cash…
This paper investigates how to measure common market risk factors using newly proposed Panel Quantile Regression Model for Returns. By exploring the fact that volatility crosses all quantiles of the return distribution and using penalized…
Bond prices are a reflection of extremely complex market interactions and policies, making prediction of future prices difficult. This task becomes even more challenging due to the dearth of relevant information, and accuracy is not the…
The CAPM regression is typically interpreted as if the market return contemporaneously \emph{causes} individual returns, motivating beta-neutral portfolios and factor attribution. For realized equity returns, however, this interpretation is…
A pricing formula for discount bonds, based on the consideration of the market perception of future liquidity risk, is established. An information-based model for liquidity is then introduced, which is used to obtain an expression for the…
We consider a Black-Scholes market in which a number of stocks and an index are traded. The simplified Capital Asset Pricing Model is the conjunction of the usual Capital Asset Pricing Model, or CAPM, and the statement that the appreciation…
This paper introduces a new semi-parametric approach to the pricing and risk management of bespoke CDO tranches, with a particular attention to bespokes that need to be mapped onto more than one reference portfolio. The only user input in…
This study provides the solution to the equity premium puzzle. The new model was developed by including the behavior of investors toward risk in financial markets in prior studies. The calculations of this newly tested model show that the…
We present tight bounds and heuristics for personalized, multi-product pricing problems. Under mild conditions we show that the best price in the direction of a positive vector results in profits that are guaranteed to be at least as large…