Bond Risk Premia and Realized Jump Volatility
Author | : Jonathan H. Wright |
Publisher | : |
Total Pages | : 64 |
Release | : 2007 |
Genre | : Bonds |
ISBN | : |
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Author | : Jonathan H. Wright |
Publisher | : |
Total Pages | : 64 |
Release | : 2007 |
Genre | : Bonds |
ISBN | : |
Author | : Jonathan H. Wright |
Publisher | : |
Total Pages | : 33 |
Release | : 2009 |
Genre | : |
ISBN | : |
We find that augmenting a regression of excess bond returns on the term structure of forward rates with an estimate of the mean realized jump size almost doubles the R2 of the forecasting regression. The return predictability from augmenting with the jump mean easily dominates that offered by augmenting with options-implied volatility and realized volatility from high frequency data. In out-of-sample forecasting exercises, inclusion of the jump mean can reduce the root mean square prediction error by up to 40 percent. The incremental return predictability captured by the realized jump mean largely accounts for the countercyclical movements in bond risk premia. This result is consistent with the setting of an incomplete market in which the conditional distribution of excess bond returns is affected by a jump risk factor that does not lie in the span of the term structure of yields.
Author | : Torben Gustav Andersen |
Publisher | : Springer Science & Business Media |
Total Pages | : 1045 |
Release | : 2009-04-21 |
Genre | : Business & Economics |
ISBN | : 3540712976 |
The Handbook of Financial Time Series gives an up-to-date overview of the field and covers all relevant topics both from a statistical and an econometrical point of view. There are many fine contributions, and a preamble by Nobel Prize winner Robert F. Engle.
Author | : Don H. Kim |
Publisher | : |
Total Pages | : 33 |
Release | : 2014 |
Genre | : Bonds |
ISBN | : |
We construct a no-arbitrage term structure model with jumps in the entire state vector at deterministic times but of random magnitudes. Jump risk premia are allowed for. We show that the model implies a closed-form representation of yields as a time-inhomogenous affine function of the state vector. We apply the model to the term structure of US Treasury rates, estimated at the daily frequency, allowing for jumps on days of employment report announcements. Our model can match the empirical fact that the term structure of interest rate volatility has a hump-shaped pattern on employment report days (but not on other days). The model also produces patterns in bond risk premia that are consistent with the empirical finding that much of the time-variation in excess bond returns accrues at times of important macroeconomic data releases.
Author | : David Lando |
Publisher | : Princeton University Press |
Total Pages | : 328 |
Release | : 2009-12-13 |
Genre | : Business & Economics |
ISBN | : 1400829194 |
Credit risk is today one of the most intensely studied topics in quantitative finance. This book provides an introduction and overview for readers who seek an up-to-date reference to the central problems of the field and to the tools currently used to analyze them. The book is aimed at researchers and students in finance, at quantitative analysts in banks and other financial institutions, and at regulators interested in the modeling aspects of credit risk. David Lando considers the two broad approaches to credit risk analysis: that based on classical option pricing models on the one hand, and on a direct modeling of the default probability of issuers on the other. He offers insights that can be drawn from each approach and demonstrates that the distinction between the two approaches is not at all clear-cut. The book strikes a fruitful balance between quickly presenting the basic ideas of the models and offering enough detail so readers can derive and implement the models themselves. The discussion of the models and their limitations and five technical appendixes help readers expand and generalize the models themselves or to understand existing generalizations. The book emphasizes models for pricing as well as statistical techniques for estimating their parameters. Applications include rating-based modeling, modeling of dependent defaults, swap- and corporate-yield curve dynamics, credit default swaps, and collateralized debt obligations.
Author | : George Eugene Tauchen |
Publisher | : |
Total Pages | : 60 |
Release | : 2006 |
Genre | : Interest rates |
ISBN | : |
This paper extends the jump detection method based on bi-power variation to identify realized jumps on financial markets and to estimate parametrically the jump intensity, mean, and variance. Finite sample evidence suggests that jump parameters can be accurately estimated and that the statistical inferences can be reliable, assuming that jumps are rare and large. Applications to equity market, treasury bond, and exchange rate reveal important differences in jump frequencies and volatilities across asset classes over time. For investment grade bond spread indices, the estimated jump volatility has more forecasting power than interest rate factors and volatility factors including option-implied volatility, with control for systematic risk factors. A market jump risk factor seems to capture the low frequency movements in credit spreads.
Author | : Bala Arshanapalli |
Publisher | : |
Total Pages | : 48 |
Release | : 2003 |
Genre | : |
ISBN | : |
This paper investigates the sources of time-varying risk and risk premia for both the U.S. stock and bond markets. Although a growing literature has emerged that examines the return and volatility characteristics of the U.S. stock and bond markets separately, little work has appeared that models these markets jointly. This paper proposes a model that provides evidence concerning the sources of time varying risk and risk premia in the markets that considers both markets simultaneously. The model captures the change in the risk premium to each market's own volatility risk as well as to the covariance risk for specific events. We test for the effects of macroeconomic news on time-varying volatility as well as time-varying covariance, and whether such news induces time-varying risk premia in either of the markets. We find that stocks, as opposed to bonds exhibit a change in the risk premium on variance risk on PPI announcement dates. There is also evidence of a change in the bond risk premium on covariance risk on macroeconomic news announcement dates. Employment reports and PPI releases appear as events inducing time-varying conditional variance for stock, Treasury Notes, as well as Treasury Bond returns. Finally, the results do not support the conjecture that conditional covariance of stock and bond returns falls on announcement days.
Author | : Luc Bauwens |
Publisher | : John Wiley & Sons |
Total Pages | : 566 |
Release | : 2012-03-22 |
Genre | : Business & Economics |
ISBN | : 1118272056 |
A complete guide to the theory and practice of volatility models in financial engineering Volatility has become a hot topic in this era of instant communications, spawning a great deal of research in empirical finance and time series econometrics. Providing an overview of the most recent advances, Handbook of Volatility Models and Their Applications explores key concepts and topics essential for modeling the volatility of financial time series, both univariate and multivariate, parametric and non-parametric, high-frequency and low-frequency. Featuring contributions from international experts in the field, the book features numerous examples and applications from real-world projects and cutting-edge research, showing step by step how to use various methods accurately and efficiently when assessing volatility rates. Following a comprehensive introduction to the topic, readers are provided with three distinct sections that unify the statistical and practical aspects of volatility: Autoregressive Conditional Heteroskedasticity and Stochastic Volatility presents ARCH and stochastic volatility models, with a focus on recent research topics including mean, volatility, and skewness spillovers in equity markets Other Models and Methods presents alternative approaches, such as multiplicative error models, nonparametric and semi-parametric models, and copula-based models of (co)volatilities Realized Volatility explores issues of the measurement of volatility by realized variances and covariances, guiding readers on how to successfully model and forecast these measures Handbook of Volatility Models and Their Applications is an essential reference for academics and practitioners in finance, business, and econometrics who work with volatility models in their everyday work. The book also serves as a supplement for courses on risk management and volatility at the upper-undergraduate and graduate levels.
Author | : Lorenzo Bretscher |
Publisher | : |
Total Pages | : 100 |
Release | : 2019 |
Genre | : |
ISBN | : |
Fiscal policy matters for bond risk premia. Empirically, government spending level and volatility predict excess bond returns. Shocks to government spending level and volatility are also priced in the cross-section of bond and stock portfolios. Theoretically, level shocks raise inflation when marginal utility is high, thus generating positive inflation risk premia (term structure level effect). Volatility shocks steepen the yield curve (slope effect), producing positive term premia. These effects are consistent with evidence from a structural VAR. Further, asset pricing tests using model simulated data corroborate our empirical findings. Lastly, fiscal shocks are amplified at the zero lower bound.
Author | : Robert A. Meyers |
Publisher | : Springer Science & Business Media |
Total Pages | : 919 |
Release | : 2010-11-03 |
Genre | : Business & Economics |
ISBN | : 1441977007 |
Finance, Econometrics and System Dynamics presents an overview of the concepts and tools for analyzing complex systems in a wide range of fields. The text integrates complexity with deterministic equations and concepts from real world examples, and appeals to a broad audience.