Asset pricing

• A Simple Method for Extracting the Probability of Default from American Put Option Prices

  Staff Working Paper 2020-15 Bo Young Chang, Greg Orosi

  A put option is a financial contract that gives the holder the right to sell an asset at a specific price by (or at) a specific date. A put option can therefore provide its holder insurance against a large drop in the stock price. This makes the prices of put options an ideal source of information for a market-based measure of the probability of a firm’s default.

  Content Type(s): Staff research, Staff working papers Topic(s): Asset pricing, Financial markets, Market structure and pricing JEL Code(s): G, G1, G13, G3, G33

• Learning, Equilibrium Trend, Cycle, and Spread in Bond Yields

  Staff Working Paper 2020-14 Guihai Zhao

  This equilibrium model explains the trend in long-term yields and business-cycle movements in short-term yields and yield spreads. The less-frequent inverted yield curves (and less-frequent recessions) after the 1990s are due to recent secular stagnation and procyclical inflation expectations.

  Content Type(s): Staff research, Staff working papers Topic(s): Asset pricing, Financial markets, Interest rates JEL Code(s): E, E4, E43, G, G0, G00, G1, G12