Euro at Risk: The Impact of Member Countries' Credit Risk on the Stability of the Common Currency

Scientific Conference (2012)

Noise Trading and the Cross-Section of Index Option Prices

E-print/Working paper (2012)

Does the GARCH Structural Credit Risk Model Make a Difference?

E-print/Working paper (2011)

In this study, we empirically investigate and evaluate various approaches to structurally assess credit risk using a panel of European banking groups. We consider not only the standard approaches in the ... [more ▼]

In this study, we empirically investigate and evaluate various approaches to structurally assess credit risk using a panel of European banking groups. We consider not only the standard approaches in the literature, but also include models that allow the asset volatility to be stochastic and models that allow for short- and long-term components of default risk. Models are evaluated by comparing their ability to correctly and timely identify changes in risk indicators. Surprisingly, we find that the GARCH structural credit risk model, despite its more sophisticated modeling approach, typically underperforms more basic models. Importantly for macro-prudential policy, the combined Merton/GARCH-MIDAS model performs best and reflects important market events earlier than the other approaches. [less ▲]

Modeling Structural Changes in the Volatility Process

in Journal of Empirical Finance (2011)

The Relative Informational Efficiency of Stocks, Options and Credit Default Swaps

Scientific Conference (2011)

In this study, we investigate the dynamics behind informed investors’ trading decisions among Eu-ropean stock, options and credit default swap markets. This allows us to identify the predictive ex ... [more ▼]

In this study, we investigate the dynamics behind informed investors’ trading decisions among Eu-ropean stock, options and credit default swap markets. This allows us to identify the predictive ex-planatory power of the unique information contained in each market with respect to future stock, CDS and option market movements. A lead-lag relation is found between the CDS market and the other markets, in which changes in CDS spreads are able to consistently forecast changes in stock prices and equity options’ implied volatilities pointing out how the fast growing CDS market seems to play a special role in the price discovery process. Moreover, in contrast to US results, the stock market is found to forecast changes in the other two markets suggesting that investors also prefer stock market involvement to exploit their information advantages and then move to CDS and option markets. Interestingly, those patterns have only emerged during the recent financial crisis, while before the crisis the option market was found to be of major importance in the price discovery process. [less ▲]

Large Portfolio Risk Management and Optimal Portfolio Allocation with Dynamic Copulas

E-print/Working paper (2011)

TIPS, Inflation Expectations, and the Financial Crisis

in Financial Analysts Journal (2010), 66(6), 27-39

Modeling structural changes in the volatility process

E-print/Working paper (2010)

Behavioral Heterogeneity in the Option Market

E-print/Working paper (2009)

Loss Functions in Option Valuation: A Framework for Model Selection

in Management Science (2009), 55(5), 853-862