Frank Xiaoling Zhang

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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)
participants at the 2001 AFA meetings in New Orleans and the Accounting and Finance Conference at Michigan provided several useful comments. The suggestions of Greg Duee and Tyler Shumway h a v e improved this paper. The views expressed herein are the authors own and do not necessarily re BLOCKINect those of the Federal Reserve Board or its sta.
Pat White, along with seminar participants at the Federal Reserve Board, European Finance Association meeting 2003 in Glasgow and Moody's KMV for helpful suggestions. Matthew Chesnes and Adam Sanjurjo provided excellent research assistance. The views expressed herein are the authors own and do not necessarily reflect those of the Federal Reserve Board or(More)
F rom a large array of economic and financial data series, this paper identifies three fundamental risk dimensions underlying an economy: inflation, real output growth, and financial market volatility. Furthermore, through a no-arbitrage model, the paper links the dynamics and market pricing of the three risk dimensions to the term structure of U.S.(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)
We develop models of stochastic discount factors in international economies that produce stochastic risk premiums and stochastic skewness in currency options. We estimate the models using time-series returns and option prices on three currency pairs that form a triangular relation. Estimation shows that the average risk premium in Japan is larger than that(More)
This article presents a framework for studying the role of recovery on defaultable debt prices for a wide class of processes describing recovery rates and default probability. These debt models have the ability to differentiate the impact of recovery rates and default probability, and can be employed to infer the market expectation of recovery rates(More)
In an unobservable regime-switching model, investors' learning of the state of future real fundamentals from current inflation leads to dramatic variation in asset valuations and is able to partially resolve five credit risk puzzles: (i) the high level of credit spreads for firms with average solvency ratios and volatility calibrated to their credit rating,(More)
NOTE: Staff working papers in the Finance and Economics Discussion Series (FEDS) are preliminary materials circulated to stimulate discussion and critical comment. The analysis and conclusions set forth are those of the authors and do not indicate concurrence by other members of the research staff or the Board of Governors. References in publications to the(More)