In: Journal of risk and financial management, 2016, vol. 9, no. 1, p. 2
VaR (Value at Risk) and CVaR (Conditional Value at Risk) are implied by option prices. Their relationships to option prices are derived initially under the pricing measure. It does not require assumptions about the distribution of portfolio returns. The effects of changes of measure are modest at the short horizons typically used in applications. The computation of CVaR from option price is very...
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In: Journal of econometrics, 2012, vol. 167, no. 1, p. 197-210
We characterize the robustness of subsampling procedures by deriving a formula for the breakdown point of subsampling quantiles. This breakdown point can be very low for moderate subsampling block sizes, which implies the fragility of subsampling procedures, even when they are applied to robust statistics. This instability arises also for data driven block size selection procedures minimizing ...
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In: The journal of finance, 2006, vol. 61, no. 2, p. 921-956
The paper argues that the market significantly overvalues firms with severely underfunded pension plans. These companies earn lower stock returns than firms with healthier pension plans for at least 5 years after the first emergence of the underfunding. The low returns are not explained by risk, price momentum, earnings momentum, or accruals. Further, the evidence suggests that investors do...
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In: Journal of empirical finance, 2009, vol. 16, no. 4, p. 537-556
We amend the conditional CAPM to allow for unobservable long-run changes in risk factor loadings. In this environment, investors rationally “learn” the long-run level of factor loadings from the observation of realized returns. As a consequence of this assumption, we model conditional betas using the Kalman filter. Because of its focus on low-frequency variation in betas, our approach...
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In: Journal of financial economics, 2009, vol. 92, no. 3, p. 491-518
Mandatory contributions to defined benefit pension plans provide a unique identification strategy to estimate the market's assessment of the value of internal resources controlling for investment opportunities. The price decrease following a pension-induced drop in cash is magnified for firms that appear a priori more financially constrained, suggesting a negative effect of financing...
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In: Applied mathematical finance, 2011, vol. 18, no. 4, p. 277-289
Over the years a number of two-factor interest rate models have been proposed that have formed the basis for the valuation of interest rate contingent claims. This valuation equation often takes the form of a partial differential equation, that is solved using the finite difference approach. In the case of two factor models this has resulted in solving two second order partial derivatives...
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In: International encyclopedia of statistical science, 2011, p. 1240-1242
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In: Journal of the American statistical association, 2011, vol. 106, no. 493, p. 147-156
We develop second order hypothesis testing procedures in functional measurement error models for small or moderate sample sizes, where the classical first order asymptotic analysis often fails to provide accurate results. In functional models no distributional assumptions are made on the unobservable covariates and this leads to semiparametric models. Our testing procedure is derived using...
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In: Statistical modelling, 2011, vol. 11, no. 3, p. 237-252
We adapt Breiman’s (1995) nonnegative garrote method to perform variable selection in nonparametric additive models. The technique avoids methods of testing for which no general reliable distributional theory is available. In addition it removes the need for a full search of all possible models, something which is computationally intensive, especially when the number of variables is...
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In: Review of financial studies, 2010, vol. 23, no. 9, p. 3469-3519
Commercial real estate expected returns and expected rent growth rates are time-varying. Relying on transactions data from a cross-section of U.S. metropolitan areas, we find that up to 30% of the variability of realized returns to commercial real estate can be accounted for by expected return variability, while expected rent growth rate variability explains up to 45% of the variability of...
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