G13 - Contingent Pricing; Futures Pricing

• The Economic Value of Realized Volatility: Using High-Frequency Returns for Option Valuation

  Staff Working Paper 2012-34 Peter Christoffersen, Bruno Feunou, Kris Jacobs, Nour Meddahi

  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.

  Content Type(s): Staff research, Staff working papers Topic(s): Asset pricing, Econometric and statistical methods JEL Code(s): G, G1, G13

• Risk Premium, Variance Premium and the Maturity Structure of Uncertainty

  Staff Working Paper 2012-11 Bruno Feunou, Jean-Sébastien Fontaine, Abderrahim Taamouti, Roméo Tedongap

  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.

  Content Type(s): Staff research, Staff working papers Topic(s): Asset pricing, Financial services JEL Code(s): G, G1, G12, G13

• Market Expectations and Option Prices: Evidence for the Can$/US$ Exchange Rate

  Staff Discussion Paper 2010-2 Alejandro García, Andrei Prokopiw

  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.

  Content Type(s): Staff research, Staff discussion papers Topic(s): Econometric and statistical methods, Exchange rates, Financial markets JEL Code(s): C, C0, C00, C02, G, G1, G13

• Measures of Aggregate Credit Conditions and Their Potential Use by Central Banks

  Staff Discussion Paper 2009-12 Alejandro García, Andrei Prokopiw

  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.

  Content Type(s): Staff research, Staff discussion papers Topic(s): Credit and credit aggregates, Financial markets, Financial stability JEL Code(s): G, G1, G10, G12, G13

• The Equity Premium and the Volatility Spread: The Role of Risk-Neutral Skewness

  Staff Working Paper 2009-20 Bruno Feunou, Jean-Sébastien Fontaine, Roméo Tedongap

  We introduce the Homoscedastic Gamma [HG] model where the distribution of returns is characterized by its mean, variance and an independent skewness parameter under both measures. The model predicts that the spread between historical and risk-neutral volatilities is a function of the risk premium and of skewness.

  Content Type(s): Staff research, Staff working papers Topic(s): Financial markets JEL Code(s): G, G1, G12, G13

• Futures Markets, Oil Prices and the Intertemporal Approach to the Current Account

  Staff Working Paper 2008-48 Elif Arbatli

  The intertemporal approach to the current account suggests modeling movements in the current account in a forward-looking, dynamic framework. In this framework, the current account reflects consumption smoothing of agents that lend and borrow from the rest of the world in the face of transitory shocks to income.

  Content Type(s): Staff research, Staff working papers Topic(s): Balance of payments and components JEL Code(s): C, C2, C22, F, F2, F21, F3, F32, G, G1, G13

• Default Dependence: The Equity Default Relationship

  Staff Working Paper 2008-1 Stuart Turnbull, Jun Yang

  The paper examines three equity-based structural models to study the nonlinear relationship between equity and credit default swap (CDS) prices. These models differ in the specification of the default barrier.

  Content Type(s): Staff research, Staff working papers Topic(s): Econometric and statistical methods, Financial markets JEL Code(s): G, G1, G12, G13

• Price Discovery in Canadian and U.S. 10-Year Government Bond Markets

  Staff Working Paper 2007-43 Bryan Campbell, Scott Hendry

  This paper presents some new results on the price discovery process in both the Canadian and U.S. 10-year Government bond markets using high-frequency data not previously analyzed. Using techniques introduced by Hasbrouck (1995) and Gonzalo-Granger (1995), we look at the relative information content of cash and futures prices in the market for Canadian Government bonds using futures market data from the Montreal Exchange and OTC cash market data reflecting the inter-dealer market covered by CanPx.

  Content Type(s): Staff research, Staff working papers Topic(s): Financial markets, Market structure and pricing JEL Code(s): G, G1, G12, G13, G14

• Price Discovery in Canadian Government Bond Futures and Spot Markets

  Staff Working Paper 2007-4 Christopher Chung, Bryan Campbell, Scott Hendry

  In this paper we look at the relative information content of cash and futures prices for Canadian Government bonds. We follow the information-share approaches introduced by Hasbrouck (1995) and Harris et al (1995), applying the techniques in Gonzalo-Granger (1995), to evaluate the relative contributions of trading in the cash and futures markets to the price discovery process.

  Content Type(s): Staff research, Staff working papers Topic(s): Financial markets, Market structure and pricing JEL Code(s): G, G1, G12, G13, G14

• Conditioning Information and Variance Bounds on Pricing Kernels with Higher-Order Moments: Theory and Evidence

  Staff Working Paper 2006-38 Fousseni Chabi-Yo

  The author develops a strategy for utilizing higher moments and conditioning information efficiently, and hence improves on the variance bounds computed by Hansen and Jagannathan (1991, the HJ bound) and Gallant, Hansen, and Tauchen (1990, the GHT bound).

  Content Type(s): Staff research, Staff working papers Topic(s): Financial markets, Market structure and pricing JEL Code(s): C, C6, C61, G, G1, G12, G13