We measure uncertainty surrounding the central bank's future policy rates using implied volatility computed from interest rate option prices and realized volatility computed from intraday prices of interest rate futures. Both volatility measures show that uncertainty decreased following the most...

We use detailed data on the bids at auctions for Government of Canada bonds between 1999 and 2021 to gauge the yield sensitivity of these bonds to the issuance amount. We propose a new metric that captures the slope of the demand function at each auction by using the information in the multiple...

There is a close link between prices of equity options and the default probability of a firm. We show that in the presence of positive expected equity recovery, standard methods that assume zero equity recovery at default misestimate the option-implied default probability. We introduce a simple...

In this paper, we present a novel method to extract the risk-neutral probability of default of a firm from American put option prices. Building on the idea of a default corridor proposed in Carr and Wu (2011), we derive a parsimonious closed-form formula for American put option prices from which...

We provide a novel daily decomposition of the real exchange rate that exploits a direct link between bond and foreign exchange (FX) markets. Real exchange rate dynamics can be attributed to changes in the expected future level of the exchange rate; cross-country differentials of expected...

Expected returns vary when investors face time-varying investment opportunities. Longrun risk models (Bansal and Yaron 2004) and no-arbitrage affine models (Duffie, Pan, and Singleton 2000) emphasize sources of risk that are not observable to the econometrician. We show that, for both classes of...

Many studies have documented that daily realized volatility estimates based on intraday returns provide volatility forecasts that are superior to forecasts constructed from daily returns only. We investigate whether these forecasting improvements translate into economic value added. To do so we...

We provide a decomposition of nominal yields into real yields, expectations of future inflation and inflation risk premiums when real bonds or inflation swaps are unavailable or unreliable due to their relative illiquidity. We combine nominal yields with surveys of inflation forecasts within a...

In this paper, we estimate the distribution of future inflation and growth in real gross domestic product (GDP) for the Canadian economy at a daily frequency. To do this, we model the conditional moments (mean, variance, skewness and kurtosis) of inflation and GDP growth as moving averages of...

We introduce generalized autoregressive gamma (GARG) processes, a class of autoregressive and moving-average processes that extends the class of existing autoregressive gamma (ARG) processes in one important dimension: each conditional moment dynamic is driven by a different and identifiable...