Journal Article The Skew Risk Premium in the Equity Index Market Get access Roman Kozhan, Kozhan Search for other works by this author on: Oxford Academic Google Scholar Anthony Neuberger, Neuberger Paul Schneider Review of Financial Studies, Volume 26, Issue 9, September 2013, Pages 2174–2203, https://doi.org/10.1093/rfs/hht039 Published: 01 2013

ABSTRACT This paper shows that low‐risk anomalies in the capital asset pricing model and traditional factor models arise when investors require compensation for coskewness risk. Empirically, we find option‐implied ex ante skewness is strongly related to post residual coskewness, which allows us construct factor‐mimicking portfolios. Controlling renders alphas of betting‐against‐beta betting‐against‐volatility insignificant. We also show returns beta‐ volatility‐sorted portfolios are driven...

ABSTRACT Under mild assumptions, we recover the model‐free conditional minimum variance projection of pricing kernel on various tradeable realized moments market returns. Recovered predict future realizations and give insight into cyclicality equity premia, risk highest attainable Sharpe ratios under probability. The projections are often U ‐shaped rise to optimal portfolio strategies with plausible timing properties, moderate countercyclical exposures higher moments, favorable out‐of‐sample ratios.

Abstract Using an extensive cross section of U.S. corporate credit default swaps (CDSs), this paper offers economic understanding implied loss given (LGD) and jumps in risk. We formulate underpin empirical stylized facts about CDS spreads, which are then reproduced our affine intensity-based jump-diffusion model. Implied LGD is well identified, with obligors possessing substantial tangible assets expected to recover more. Sudden increases the risk investment-grade higher relative speculative...

Abstract Realized divergence measures the distinct realized moments associated with time-varying uncertainty. It is tradeable swaps engineered from delta-hedged option portfolios. Implied decomposes price of uncertainty into implied moments, in a way that consistent established notions deviation put-call symmetry markets. Empirically, market and risk premia vary substantially, time series, cross-sectionally as function investment horizon. Such variations can help to make potential...

Market skewness risk is priced, but the components of its premium are not fully understood. We propose new trading strategies decomposing into jump and leverage effect components, we analyze premia in market for S&P 500 index options. find that higher when markets closed than during hours, consistently with uncertainty resolution patterns by non-U.S investors; it increases after left-tail events; distinct from variance premium. Moreover, dominated priced risk. This paper was accepted Kay...

Journal Article Bayesian Inference for Discretely Sampled Markov Processes with Closed-Form Likelihood Expansions Get access Osnat Stramer, Stramer University of Iowa Search other works by this author on: Oxford Academic Google Scholar Matthew Bognar, Bognar Paul Schneider Warwick Business School Financial Econometrics, Volume 8, Issue 4, Fall 2010, Pages 450–480, https://doi.org/10.1093/jjfinec/nbp027 Published: 04 November 2009

We measure the skew risk premium in equity index market through swap. argue that just as variance swaps can be used to explore relationship between implied option prices and realized variance, so too volatility skew. Like swap, swap corresponds a trading strategy, necessary assess premia model-free way. find almost half of explained by premium. provide evidence are manifestations same underlying factor sense strategies designed exploit one but hedge out other make zero excess returns.

We develop a new framework for embedding (joint) probability distributions in tensor product reproducing kernel Hilbert spaces (RKHS). This accommodates low-dimensional, positive, and normalized model of Radon-Nikodym derivative, estimated from sample sizes up to several million data points, alleviating the inherent limitations RKHS modeling. Well-defined positive conditional are natural by-products our approach. The is fast compute naturally learning problems ranging prediction...

Abstract There is no prior published Australian research on earnings momentum and only one unpublished work of limited depth scope. We provide some the first evidence revisit price with behaviour returns beyond 12 months. Price found to be a feature this market, but there reversal during second year after portfolio formation, suggesting trend chasing behaviour. Earnings also present, weak continuation into year. are shown independent explanatory power over future returns.

This paper shows that low risk anomalies in the CAPM and traditional factor models arise when investors require compensation for coskewness risk. Empirically, we find option-implied ex-ante skewness is strongly related to ex-post residual coskewness, which allows us construct mimicking portfolios. Controlling renders alphas of betting-against-beta -volatility insignificant. We also show returns beta- volatility-sorted portfolios are largely driven by a single principal component, turn...

We derive the Green's function for Black–Scholes partial differential equation with time-varying coefficients and time-dependent boundary conditions. provide a thorough discussion of its implementation within pricing algorithm that also accommodates American style options. Greeks can be computed as derivatives function. Generic handling arbitrary conditions suggests our approach to used (American) barrier options, although options without barriers priced equally well. Numerical results...

This paper studies whether the evident statistical predictability of bond risk premia translates into economic gains for investors. We propose a novel estimation strategy ne term structure models that jointly fits yields and excess returns, thereby capturing predictive information otherwise hidden to standard es- timations. The model predicts returns with high regressions R^2s forecast accuracy but cannot outperform expectations hypothesis out-of-sample in terms value, showing general...

We introduce a new model for the joint dynamics of S&P 100 index and VXO implied volatility index. The nonlinear specification variance process is designed to simultaneously accommodate extreme persistence strong mean reversion. This grants superior forecasting power over standard (linear) specifications forecasting. obtain statistically significant predictions in an out-of-sample exercise spanning several market crashes starting 1986 including recent subprime crisis. possible through simple...

We present a nonparametric method to recover bound on ex ante dispersion of beliefs (DBB) from asset prices with minimal assumptions. DBB constrains the among all possible distributions in an economy, consistent observed and subject good-deal bound. In model-based economies, effectively tracks belief heterogeneity serves as diagnostic tool for evaluating model calibrations. Empirically, relates common proxies dispersion, offering real-time, market-implied disagreement measure. Our versatile...