This article presents a framework for modeling defaultable debt under alternative recovery conventions (for a wide class of processes describing recovery rates and default probability). These debt models have the ability to differentiate the impact of recovery rates and default probability, and...

From a credit risk perspective, little is known about the distress factors -- economy-wide or firm-specific -- that are important in explaining variations in defaultable coupon yields. This paper proposes and empirically tests a family of credit risk models. Empirically, we find that...

Global risks allow theoretical models of the currency market to explain currency risk premia. Yet, there is no consensus in the empirical literature on which factors can represent global risks. We develop an asset pricing test for global risk factors that relies on the key assumption of a...

We show that a model featuring an average commodity factor, a carry factor, and a momentum factor is capable of describing the cross-sectional variation of commodity returns. More parsimonious one- and two-factor models that feature only the average and/or carry factors are rejected. To provide...

Hedge funds are fundamentally exposed to equity volatility, skewness, and kurtosis risks based on the systematic pattern and significant spread in alphas from the existing models that do not control for the higher-moment risks. The spread and pattern in alphas do not disappear with bootstrap...

We develop an incomplete markets framework to synthesize domestic and foreign stochastic discount factors (SDFs) that are consistent with limited international risk sharing. The fundamental departure in our paper is that exchange rate growth need not equal the ratio of SDFs, and we develop a...

Does the primacy of the U.S. dollar affect the pricing of risks in the currency options market? Our findings rely on a daily option panel of 15 currencies. This analysis reveals that (i) put risk premiums are negative, implying across-the-board interest in hedging foreign currency depreciations;...