G13 - Contingent Pricing; Futures Pricing
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What Fed Funds Futures Tell Us About Monetary Policy Uncertainty
The uncertainty around future changes to the Federal Reserve target rate varies over time. In our results, the main driver of uncertainty is a “path” factor signaling information about future policy actions, which is filtered from federal funds futures data. -
Equity Option-Implied Probability of Default and Equity Recovery Rate
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. -
What Does the Convenience Yield Curve Tell Us about the Crude Oil Market?
Using the prices of crude oil futures contracts, we construct the term structure of crude oil convenience yields out to one-year maturity. The crude oil convenience yield can be interpreted as the interest rate, denominated in barrels of oil, for borrowing a single barrel of oil, and it measures the value of storing crude oil over the borrowing period. -
CoMargin
We present CoMargin, a new methodology to estimate collateral requirements for central counterparties (CCPs) in derivatives markets. CoMargin depends on both the tail risk of a given market participant and its interdependence with other participants. -
The Financialization of Food?
Commodity-equity and cross-commodity return co-movements rose dramatically after the 2008 financial crisis. This development took place following what has been dubbed the “financialization” of commodity markets. -
Estimating the Policy Rule from Money Market Rates when Target Rate Changes Are Lumpy
Most central banks effect changes to their target or policy rate in discrete increments (e.g., multiples of 0.25%) following public announcements on scheduled dates. Still, for most applications, researchers rely on the assumption that the policy rate changes linearly with economic conditions and they do not distinguish between dates with and without scheduled announcements. -
The Economic Value of Realized Volatility: Using High-Frequency Returns for Option Valuation
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. -
Risk Premium, Variance Premium and the Maturity Structure of Uncertainty
Expected returns vary when investors face time-varying investment opportunities. Long-run 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. -
Market Expectations and Option Prices: Evidence for the Can$/US$ Exchange Rate
Security prices contain valuable information that can be used to make a wide variety of economic decisions. To extract this information, a model is required that relates market prices to the desired information, and that ideally can be implemented using timely and low-cost methods. -
Measures of Aggregate Credit Conditions and Their Potential Use by Central Banks
Understanding the nature of credit risk has important implications for financial stability. Since authorities – notably, central banks – focus on risks that have systemic implications, it is crucial to develop ways to measure these risks.