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Bayesian Estimation of Time-Changed Default Intensity Models

Gordy, Michael B.; Szerszen, Pawel J. - Federal Reserve Board (Board of Governors of the … - 2015

We estimate a reduced-form model of credit risk that incorporates stochastic volatility in default intensity via …-dependent volatility in the state equation. We implement on firm-level time-series of CDS spreads, and find strong in-sample evidence of … stochastic volatility in this market. Relative to the widely-used CIR model for the default intensity, we find that stochastic …

Persistent link: https://www.econbiz.de/10011273702

Generating Options-Implied Probability Densities to Understand Oil Market Events

Datta, Deepa Dhume; Londono, Juan M.; Ross, Landon J - Federal Reserve Board (Board of Governors of the … - 2014

We investigate the informational content of options-implied probability density functions (PDFs) for the future price of oil. Using a semiparametric variant of the methodology in Breeden and Litzenberger (1978), we investigate the fit and smoothness of distributions derived from alternative PDF...

Persistent link: https://www.econbiz.de/10011075152

A Tale of Two Option Markets: Pricing Kernels and Volatility Risk

Song, Zhaogang; Xiu, Dacheng - Federal Reserve Board (Board of Governors of the … - 2014

volatility risk. While pointing out the joint pricing kernel is not identified nonparametrically, we propose model-free estimates … of marginal pricing kernels of the market return and volatility conditional on the VIX. We find that the pricing kernel … present a U-shape. Hence, stochastic volatility is the key state variable responsible for the U-shape puzzle documented in the …

Persistent link: https://www.econbiz.de/10010886219

QE Auctions of Treasury Bonds

Song, Zhaogang; Zhu, Haoxiang - Federal Reserve Board (Board of Governors of the … - 2014

The Federal Reserve (Fed) uses a unique auction mechanism to purchase U.S. Treasury securities in implementing its quantitative easing (QE) policy. In this paper, we study the outcomes of QE auctions and participating dealers' bidding behaviors from November 2010 to September 2011, during which...

Persistent link: https://www.econbiz.de/10010886228

Dealer Networks

Li, Dan; Schurhoff, Norman - Federal Reserve Board (Board of Governors of the … - 2014

Dealers in over-the-counter securities form networks to mitigate search frictions. The audit trail for municipal bonds shows the dealer network has a core-periphery structure. Central dealers are more efficient at matching buyers and sellers than peripheral dealers, which shortens intermediation...

Persistent link: https://www.econbiz.de/10011095300

Returns to Active Management: The Case of Hedge Funds

Kazemi, Maziar; Islamaj, Ergys - Federal Reserve Board (Board of Governors of the … - 2014

Do more active hedge fund managers generate higher returns than their less active peers? We attempt to answer this question. Using Kalman Filter techniques, we estimate the risk exposure dynamics of a large sample of live and dead equity long-short hedge funds. These estimates are then used to...

Persistent link: https://www.econbiz.de/10010892321

How Public Information Affects Asymmetrically Informed Lenders: Evidence from a Credit Registry Reform

Choudhary, M. Ali; jain, Anil K. - Federal Reserve Board (Board of Governors of the … - 2014

We exploit exogenous variation in the amount of public information available to banks about a firm to empirically evaluate the importance of adverse selection in the credit market. A 2006 reform introduced by the State Bank of Pakistan (SBP) reduced the amount of public information available to...

Persistent link: https://www.econbiz.de/10011119890

The Low Frequency Effects of Macroeconomic News on Government Bond Yields

Altavilla, Carlo; Giannone, Domenico; Modugno, Michele - Federal Reserve Board (Board of Governors of the … - 2014

This study analyzes the reaction of the U.S. Treasury bond market to innovations in macroeconomic fundamentals. We identify these innovations with macroeconomic news, defined as differences between the actual releases and their market expectations. We show that macroeconomic news explain about...

Persistent link: https://www.econbiz.de/10010886226

Downside Variance Risk Premium

Feunou, Bruno; Jahan-Parvar, Mohammad; Okou, Cedric - Federal Reserve Board (Board of Governors of the … - 2015

We propose a new decomposition of the variance risk premium in terms of upside and downside variance risk premia. The difference between upside and downside variance risk premia is a measure of skewness risk premium. We establish that the downside variance risk premium is the main component of...

Persistent link: https://www.econbiz.de/10011261280

Jumps in Bond Yields at Known Times

Kim, Don H.; Wright, Jonathan H. - Federal Reserve Board (Board of Governors of the … - 2014

We construct a no-arbitrage term structure model with jumps in the entire state vector at deterministic times but of … empirical fact that the term structure of interest rate volatility has a hump-shaped pattern on employment report days (but not …

Persistent link: https://www.econbiz.de/10011095294