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This article provides several new insights into the economic sources of skewness. First, we document the differential pricing of individual equity options versus the market index and relate it to variations in return skewness. Second, we show how risk aversion introduces skewness in the risk-neutral density. Third, we derive laws that decompose individual(More)
Using a new Bayesian method for the analysis of diffusion processes, this article finds that the nonlinear drift in interest rates found in a number of previous studies can be confirmed only under prior distributions that are best described as informative. The assumption of stationarity, which is common in the literature, represents a nontrivial prior(More)
Tauchen for helpful discussions and we especially thank Bob Hodrick for providing detailed comments. Abstract We estimate Taylor (1993) rules and identify monetary policy shocks using no-arbitrage pricing techniques. Long-term interest rates are risk-adjusted expected values of future short rates and thus provide strong over-identifying restrictions about(More)
Most term structure models assume bond markets are complete, i.e., that all fixed income derivatives can be perfectly replicated using solely bonds. However, we find that, in practice , swap rates have limited explanatory power for returns on at-the-money straddles – portfolios mainly exposed to volatility risk. We term this empirical feature " unspanned(More)
and Duke conference on risk-neutral and objective probability measures provided many useful suggestions. A special thanks goes to Cam Harvey (the Editor) and an anonymous referee, whose suggestions have helped us improve this paper substantially. Kristaps Licis provided expert research assistance. Any errors are our own. An earlier version of this paper was(More)
(the editor), Cli! Smith (the referee), ReneH Stulz, and Luigi Zingales for helpful comments. Weisbach thanks the NSF (Grant SBR-9616675) for "nancial support. John Graham graciously provided tax-rate data used in the simulations. This paper was completed while Weisbach was on the faculty at University of Arizona. Abstract We examine the importance of(More)
Executive Summary 3 This report, the sixth annual report of the North West HIV/AIDS Monitoring Unit, presents data on HIV positive individuals accessing treatment and care in the North West Region. During 2001 a total of 1,964 individuals living with HIV or AIDS presented to statutory treatment centres in the North West Region. When those individuals(More)
Substantial academic research has explained why ¯rms should hedge, but little work has addressed how ¯rms should hedge. We assume that ¯rms face costly states of nature and derive optimal hedging strategies using vanilla derivatives (e.g., forwards and options) and custom \exotic" derivative contracts for a value-maximizing ¯rm that faces both hedgable(More)
African swine fever (ASF) is an acute haemorrhagic disease of domestic pigs for which there is currently no vaccine. We showed that experimental immunisation of pigs with the non-virulent OURT88/3 genotype I isolate from Portugal followed by the closely related virulent OURT88/1 genotype I isolate could confer protection against challenge with virulent(More)
In this paper we demonstrate the need for a negative market price of volatility risk to recover the difference between Black-Scholes (1973)/Black (1976) implied volatility and realized term volatility. Using quasi-Monte Carlo simulation, we demonstrate numerically that a negative market price of volatility risk is the key risk premium in explaining the(More)