Professor Pedro Santa-Clara from UCLA is giving a seminar on "Crashes, Volatility, and the Equity Premium: Lessons from S&P500 Options" on Friday, January 26th, 2.00-3.30 pm, at the WU Wien (Seminarraum D204, UZA 4, Nordbergstrasse 15, 1090 Wien, see http://www.wu-wien.ac.at/portal/ueber_wu/standorte/lageplan4 for a map). Please find below the paper's abstract.
Best regards,
Youchang Wu
Abstract:
We use a novel pricing model to imply times series of diffusive volatility and jump intensity from S&P 500 index options. These two measures capture the ex-ante risk assessed by investors. Ex-ante risk differs from realized risk (e.g., the volatility measured from the time series of returns) to the extent that investors at times perceive as probable crashes that end up not happening. We find that both components of risk vary substantially over time, are quite persistent, and correlate with each other and with the stock index. Using a simple general equilibrium model with a CRRA representative investor, we translate the ex-ante risk into an ex-ante risk premium. We find that the average premium that compensates the investor for the ex-ante risks implicit in option prices is 11.8 percent, much higher than the 7.1 percent premium required to compensate the same investor for realized risks. Moreover, the ex-ante equity premium that we uncover is highly volatile, with values between 0.3 and 54.9 percent. The component of the premium that corresponds to jump risk varies between zero and 45.4 percent. Ex-ante risks implicit in option prices justify a higher and more variable equity risk premium than the realized risk would warrant.
GUTMANN CENTER FOR PORTFOLIO MANAGEMENT
at the University of Vienna - http//:www.gutmann-center.at
invites to the following
PUBLIC LECTURE:
(Apologies for any cross-listings!):
Date: January 25th, 2007, 4.00 pm
Location: Bank Gutmann, Schwarzenbergplatz 16, 1010 Wien
Speaker: Prof. Dr. PEDRO SANTA-CLARA, UCLA Anderson School of Management
http://personal.anderson.ucla.edu/pedro.santa-clara/
Title: HOW TO OPTIMIZE PORTFOLIOS WITH A LARGE NUMBER OF ASSETS?
Abstract:
We propose a novel approach to optimizing portfolios with large numbers
of assets. We model directly the portfolio weight in each asset as a
function of the asset's characteristics. Our approach is computationally
simple, easily modified and extended, produces sensible portfolio
weights, and offers robust performance in and out of sample. In
contrast, the traditional approach of first modeling the joint
distribution of returns and then solving for the corresponding optimal
portfolio weights is not only difficult to implement for a large number
of assets but also yields notoriously noisy and unstable results.
About Pedro Santa-Clara:
Pedro Santa-Clara is Associate Professor of Finance at UCLA's Anderson
School of Management, where he has been since 1996. He received his
Ph.D. degree in Management from INSEAD, France. He is a research
associate of the National Bureau of Economic Research and an associate
editor of the Journal of Financial and Quantitative Analysis, Journal of
Business and Economic Statistics, and Management Science.
Professor Santa-Clara's research interests are focused on theoretical
models of asset pricing and the development of econometric methods to
estimate them, particularly in the areas of equity and bond pricing,
option valuation, and portfolio choice. His contributions, including the
string model of the term structure, the MIDAS model of conditional
variance, and dynamic portfolio choice by extending the asset space,
have gained wide acceptance by academics and finance professionals. His
research has been published in the Journal of Finance, Review of
Financial Studies, Journal of Financial Economics, and other leading
journals in Economics and Finance.
Professor Santa-Clara founded Atrium Investments, an asset management
company and has worked as a consultant to multiple investment banks and
hedge funds on pricing derivatives and developing investment strategies.
Please REGISTER:
Mail: gutmann.bwl(a)univie.ac.at
Phone: +43-1-4277-38186 - Fax: +43-1-4277-38074
Contact and further information:
Gutmann Center for Portfolio Management
University of Vienna - Mag. Dorothea GRIMM
Bruenner Str. 72 - 1210 Wien (Austria)
phone: +43-1-4277-38186 - fax: +43-1-4277-38074
mail: gutmann.bwl(a)univie.ac.at - web: www.gutmann-center.at
Dear colleague,
We wish you a very successful and happy new year. In addition, We want to
invite you to submit your abstract for EMNET 2007 in Rotterdam by February
28 (see http://www.univie.ac.at/EMNET/2007/index2007.html ).
We are looking forward to seeing you in Rotterdam.
Best regards,
George Hendrikse, RSM Erasmus University
Josef Windsperger, University of Vienna
Contrary to previous announcements, there will not be a seminar this week.
Massimo Massa asked us to cancel his seminar. He is not able to give a
talk since he got ill.
Please spread the following information via your newsletter!
Hansjörg Albrecher
Dear colleagues,
we would like to bring your attention to the following event:
Radon Workshop on Financial and Actuarial Mathematics
for Young Researchers
Linz, Austria, May 30-31, 2007
This international workshop aims to bring together young researchers, in
particular Ph.D. students and Postdocs, working in the field of Financial and
Actuarial Mathematics to discuss recent developments in the theory of
mathematical finance and insurance and its application to current issues facing
the industry. The goal is to promote the exchange of ideas between young
scholars in this field. Researchers in all areas of financial and actuarial
mathematics are welcome to apply.
The workshop is held at the Radon Institute of Computational and Applied
Mathematics (RICAM) of the Austrian Academy of Sciences in Linz, Austria.
Each participant is supposed to give a talk of 30 minutes length (including
discussion). In addition, there will be an opening lecture by
Prof. Ralf Korn (Kaiserslautern, Germany)
and a closing lecture by
Prof. Wim Schoutens (Leuven, Belgium).
Since there is no registration fee and for all participants the hotel
accomodation will be covered, the number of participants has to be limited to
35.
Application for participation including an abstract (length about half a page)
for the talk should be sent to fayr07(a)ricam.oeaw.ac.at
The closing date for the receipt of applications is March 31, 2007.
Notification of acceptance: April 16, 2007.
For participants from Eastern Europe, there is a limited number of travel
grants available upon application.
For further information, please visit the workshop web page at
http://www.ricam.oeaw.ac.at/conferences/fayr07/
or contact the organizers
Dr. Hansjoerg Albrecher
Radon Institute for Computational and Applied Mathematics
Austrian Academy of Sciences
Altenbergerstrasse 69 tel: +43-732-2468-5247
A-4040 Linz, Austria fax: +43-732-2468-5212
email: hansjoerg.albrecher(a)oeaw.ac.at
web: http://www.ricam.oeaw.ac.at/people/page/albrecher
and
Philipp Mayer
Graz University of Technology
Steyrergasse 30 tel: +43-316-873-5365
A-8010 Graz, Austria fax: +43-316-873-5369
email: mayer(a)opt.math.tugraz.at
web: http://www.opt.math.tugraz.at/~mayer/
CALL FOR PAPERS/ CONFERENCE ANNOUNCEMENT
GUTMANN CENTER SYMPOSIUM 2007:
"CREDIT RISK AND THE MANAGEMENT OF FIXED-INCOME PORTFOLIOS"
Gutmann Center for Portfolio Management
at the University of Vienna
http://www.gutmann-center.at
June 1st, 2007
University of Vienna, Austria
The Gutmann Center for Portfolio Management at the University of Vienna
is proud to announce its fifth annual symposium to be held at the
University of Vienna.
Topics of this year's symposium include but are not restricted to the
following aspects:
- corporate bond valuation
- corporate bond trading
- distressed debt analysis
- measuring and pricing default risk
- credit derivatives and structured credit products
- counterparty risk management
- exchange rates, sovereign risk and emerging market debt
- leveraged loan indices
- project finance and default risk
PAPER SUBMISSION:
Papers on topics mentioned above should be submitted by email (in
Acrobat PDF) not later than March 1st, 2007 to the following address:
E-mail: gutmann.bwl(a)univie.ac.at
CONTACT:
Gutmann Center for Portfolio Management
University of Vienna
Director: Josef Zechner
Administrative Director: Dorothea Grimm
Bruenner Strasse 72, 1210 Wien (Vienna), Austria
Phone: +43-1-4277-38186 - Fax: +43-1-4277-38074
Mail: gutmann.bwl(a)univie.ac.at - Homepage: http://www.gutmann-center.at
All submissions will be reviewed by a committee composed of members of
the Gutmann Center's Academic Advisory Board and decisions will be
announced by March 15th, 2007
Submission and participation are free of charge. Presenting authors are
invited to apply to Gutmann Center to cover their accommodation and
travel expenses.
Leopold Sögner from the Vienna University of Technology is giving a VGSF
research seminar on "Jumps and Recovery Rates Inferred from Corporate CDS
Premia" on FRIDAY, Jan. 12th, from 15:30 to 17:00 at the WU Wien
(Seminarraum D204, UZA 4, Nordbergstrasse 15, 1090 Wien, see
http://www.wu-wien.ac.at/portal/ueber_wu/standorte/lageplan4 for a detailed
plan). Please find the paper's abstract below.
Best,
Michael Halling
ABSTRACT
We provide a thorough investigation of the US corporate credit default swap
(CDS) market. We take a full parametric approach with an observable,
multi-factor, affine reduced-form model that accommodates jumps in the
riskless, as well as default-risky discount rates. Our empirical results
reveal that a multifactor formulation is imperative for fitting, both, the
time-series and in particular the cross-section of CDS premia. Model implied
loss given default (LGD) is well identified; it appears to be positively
related to a firm's credit quality. Incorporation of jumps significantly
improves the model's capability to reproduce the time-series behavior of CDS
premia.
GUTMANN CENTER FOR PORTFOLIO MANAGEMENT
at the University of Vienna - http//:www.gutmann-center.at
invites to the following
PUBLIC LECTURE:
(Apologies for any cross-listings!):
Date: January 25th, 2007, 4.00 pm
Location: Bank Gutmann, Schwarzenbergplatz 16, 1010 Wien
Speaker: Prof. Dr. PEDRO SANTA-CLARA, UCLA Anderson School of Management
http://personal.anderson.ucla.edu/pedro.santa-clara/
Title: HOW TO OPTIMIZE PORTFOLIOS WITH A LARGE NUMBER OF ASSETS?
Abstract:
We propose a novel approach to optimizing portfolios with large numbers
of assets. We model directly the portfolio weight in each asset as a
function of the asset's characteristics. Our approach is computationally
simple, easily modified and extended, produces sensible portfolio
weights, and offers robust performance in and out of sample. In
contrast, the traditional approach of first modeling the joint
distribution of returns and then solving for the corresponding optimal
portfolio weights is not only difficult to implement for a large number
of assets but also yields notoriously noisy and unstable results.
About Pedro Santa-Clara:
Pedro Santa-Clara is Associate Professor of Finance at UCLA's Anderson
School of Management, where he has been since 1996. He received his
Ph.D. degree in Management from INSEAD, France. He is a research
associate of the National Bureau of Economic Research and an associate
editor of the Journal of Financial and Quantitative Analysis, Journal of
Business and Economic Statistics, and Management Science.
Professor Santa-Clara's research interests are focused on theoretical
models of asset pricing and the development of econometric methods to
estimate them, particularly in the areas of equity and bond pricing,
option valuation, and portfolio choice. His contributions, including the
string model of the term structure, the MIDAS model of conditional
variance, and dynamic portfolio choice by extending the asset space,
have gained wide acceptance by academics and finance professionals. His
research has been published in the Journal of Finance, Review of
Financial Studies, Journal of Financial Economics, and other leading
journals in Economics and Finance.
Professor Santa-Clara founded Atrium Investments, an asset management
company and has worked as a consultant to multiple investment banks and
hedge funds on pricing derivatives and developing investment strategies.
Please REGISTER:
Mail: gutmann.bwl(a)univie.ac.at
Phone: +43-1-4277-38186 - Fax: +43-1-4277-38074
Contact and further information:
Gutmann Center for Portfolio Management
University of Vienna - Mag. Dorothea GRIMM
Bruenner Str. 72 - 1210 Wien (Austria)
phone: +43-1-4277-38186 - fax: +43-1-4277-38074
mail: gutmann.bwl(a)univie.ac.at - web: www.gutmann-center.at