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Too-Systemic-To-Fail: What Option Markets Imply About Sector-wide Government Guarantees

Kelly, Bryan; Lustig, Hanno; van Nieuwerburgh, Stijn - C.E.P.R. Discussion Papers - 2012

We examine the pricing of financial crash insurance during the 2007-2009 financial crisis in U.S. option markets. A large amount of aggregate tail risk is missing from the price of financial sector crash insurance during the financial crisis. The difference in costs of out-of-the-money put...

Persistent link: https://www.econbiz.de/10011083289

Carry

Koijen, Ralph; Moskowitz, Tobias J; Pedersen, Lasse Heje; … - C.E.P.R. Discussion Papers - 2013

Any security’s expected return can be decomposed into its “carry” and its expected price appreciation, where carry is a model-free characteristic that can be observed in advance. While carry has been studied almost exclusively for currencies, we find that carry predicts returns both in the...

Persistent link: https://www.econbiz.de/10011083673

Risk, Uncertainty and Asset Prices

Bekaert, Geert; Engstrom, Eric; Xing, Yuhang - C.E.P.R. Discussion Papers - 2006

We identify the relative importance of changes in the conditional variance of fundamentals (which we call "uncertainty … premiums. Theoretically, we introduce persistent time-varying uncertainty about the fundamentals in an external habit model …, uncertainty plays a large role in the term structure and is the driver of counter-cyclical volatility of asset returns. …

Persistent link: https://www.econbiz.de/10005124333

Risk, Uncertainty and Monetary Policy

Bekaert, Geert; Hoerova, Marie; Lo Duca, Marco - C.E.P.R. Discussion Papers - 2010

. We decompose the VIX into two components, a proxy for risk aversion and expected stock market volatility ("uncertainty … monetary policy decreases risk aversion after about five months. Monetary authorities react to periods of high uncertainty by …

Persistent link: https://www.econbiz.de/10008784723

CDS Auctions

Chernov, Mikhail; Gorbenko, Alexander; Makarov, Igor - C.E.P.R. Discussion Papers - 2011

auction design to minimize mispricing. In our empirical study, we find support for our theoretical predictions. We show that …

Persistent link: https://www.econbiz.de/10009144729

Asset Prices, Debt Constraints and Inefficiency

Bloise, Gaetano; Reichlin, Pietro - C.E.P.R. Discussion Papers - 2008

In this paper, we consider economies with (possibly endogenous) solvency constraints under uncertainty. Constrained …

Persistent link: https://www.econbiz.de/10005662321

Indeterminacy of Competitive Equilibrium with Risk of Default

Bloise, Gaetano; Reichlin, Pietro; Tirelli, Mario - C.E.P.R. Discussion Papers - 2009

We prove indeterminacy of competitive equilibrium in sequential economies, where limited commitment requires the endogenous determination of solvency constraints preventing debt repudiation (Alvarez and Jermann (2000)). In particular, we show that, for any arbitrary value of social welfare in...

Persistent link: https://www.econbiz.de/10008566321

Volatility Risk Premia and Exchange Rate Predictability

Della Corte, Pasquale; Ramadorai, Tarun; Sarno, Lucio - C.E.P.R. Discussion Papers - 2013

We investigate the predictive information content in foreign exchange volatility risk premia for exchange rate returns. The volatility risk premium is the difference between realized volatility and a model-free measure of expected volatility that is derived from currency options, and reflects...

Persistent link: https://www.econbiz.de/10011084715

Option-Based Credit Spreads

Culp, Christopher L.; Nozawa, Yoshio; Veronesi, Pietro - C.E.P.R. Discussion Papers - 2014

of asset uncertainty, and bank-related rollover risk. …

Persistent link: https://www.econbiz.de/10011145468

Demand-Based Option Pricing

Garleanu, Nicolae Bogdan; Pedersen, Lasse Heje; … - C.E.P.R. Discussion Papers - 2005

We model the demand-pressure effect on prices when options cannot be perfectly hedged. The model shows that demand pressure in one option contract increases its price by an amount proportional to the variance of the unhedgeable part of the option. Similarly, the demand pressure increases the...

Persistent link: https://www.econbiz.de/10005067592