Department of Finance and Real Estate

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https://hdl.handle.net/10217/206603

This digital collection includes faculty publications from the Department of Finance and Real Estate and publications from the Everitt Real Estate Center.

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Now showing 1 - 20 of 64

Open Access
A copula-based approach for generating lattices
(Colorado State University. Libraries, 2015-07-02) Wang, Tianyang, author; Dyer, James S., author; Hahn, Warren J., author; Review of Derivatives Research, publisher
Discrete approximations such as binomial and trinomial lattices have been developed to model the intertemporal dynamics of variables in a way that also allows contingent decisions to be included at the appropriate increments in time. In this paper we present an approach for developing these types of models based on copulas. In addition to ease of implementation, a primary benefit of this approach is its generality, and we show that various binomial and trinomial approximation methods for valuing contingent claim securities in the literature are special cases of this approach, each based on a choice of a particular set of probability and/or branching parameters. Because this approach encompasses these and other cases as feasible solutions, we also show how it can be used to optimize the construction of lattices so that discretization error is minimized, and we demonstrate its application for an option pricing example.
Open Access
A copulas-based approach to modeling dependence in decision trees
(Colorado State University. Libraries, 2012-01) Wang, Tianyang, author; Dyer, James, author; Operations Research, publisher
This paper presents a general framework based on copulas for modeling dependent multivariate uncertainties through the use of a decision tree. The proposed dependent decision tree model allows multiple dependent uncertainties with arbitrary marginal distributions to be represented in a decision tree with a sequence of conditional probability distributions. This general framework could be naturally applied in decision analysis and real options valuations, as well as in more general applications of dependent probability trees. While this approach to modeling dependencies can be based on several popular copula families as we illustrate, we focus on the use of the normal copula and present an efficient computational method for multivariate decision and risk analysis that can be standardized for convenient application.
Open Access
A hidden markov multi-asset price model
(Colorado State University. Libraries, 2007-01) Elliott, Robert J., author; Tao, L., author; Miao, Hong, author; Canadian Applied Mathematics Quarterly, publisher
Prices for some real world tradable assets, for instance natural gas and oil, are correlated, and the price dynamics for those assets are different in different economic environments. In this paper we extend the mean reverting model to multi-assets and model correlation between prices. Our model also allows the means and the mean reverting factors to switch between different regimes by including a Hidden Markov chain which models the different economic environments, or "states of the world." We then obtain approximate estimates for the parameters by applying filters and the EM algorithm. Approximate derivative prices are also given.
Open Access
A model for energy pricing with stochastic emission costs
(Colorado State University. Libraries, 2009-07-23) Elliott, Robert J., author; Lyle, Matthew R., author; Miao, Hong, author; Energy Economics, publisher
We use a supply-demand approach to value energy products exposed to emission cost uncertainty. We find closed form solutions for a number of popularly traded energy derivatives such as: forwards, European call options written on spot prices and European Call options written on forward contracts. Our modeling approach is to first construct noisy supply and demand processes and then equate them to find an equilibrium price. This approach is very general while still allowing for sensitivity analysis within a valuation setting. Our assumption is that, in the presence of emission costs, traditional supply growth will slow down causing output prices of energy products to become more costly over time. However, emission costs do not immediately cause output price appreciation, but instead expose individual projects, particularly those with high emission outputs, to much more extreme risks through the cost side of their profit stream. Our results have implications for hedging and pricing for producers operating in areas facing a stochastic emission cost environment.
Open Access
An examination of the flow characteristics of crude oil: evidence from risk-neutral moments
(Colorado State University. Libraries, 2015-10-10) Chatrath, Arjun, author; Miao, Hong, author; Ramchander, Sanjay, author; Wang, Tianyang, author; Energy Economics, publisher
This paper examines the information content of risk-neutral moments to explain crude oil futures returns. Implied volatility and higher moments are extracted from observed crude oil option prices using a model-free implied volatility framework and the Black–Scholes model. We find a tenuous and time-varying association between returns and implied volatility and its innovations. Specifically, changes in implied volatility are found to be meaningfully associated with crude returns only over the period spanning the recent financial crisis. The results lead us to conclude that crude oil prices are determined primarily in a flow demand/supply environment. Finally, we document that oil risk is priced into the cross-section of stock returns in the oil and transportation sectors.
Open Access
Asset classes and alternative investment
(Colorado State University. Libraries, 2020-09-18) Wang, Tianyang, author
Open Access
Colorado Front Range comparative study and scorecard: building fees and estimated approval times for 20 local governments
(Colorado State University. Libraries, 2009-03) Everitt Real Estate Center, author
Open Access
Conditional VAR
(Colorado State University. Libraries, 2020-09-18) Wang, Tianyang, author
Open Access
Corporate bonds, macroeconomic news, and investor flows
(Colorado State University. Libraries, 2012-06-30) Chatrath, Arjun, author; Miao, Hong, author; Ramchander, Sanjay, author; Villupuram, Sriram, author; Journal of Fixed Income, publisher
This article examines the impact of macroeconomic announcements on corporate bond prices and investor migrations across various types of bonds over time. In addition, the authors compare the responses of investor-grade bonds and speculative corporate bonds. They find corporate bond responses to be different from those of Treasury bonds. Positive macrosurprises are followed by declining (rising) yields on corporate bonds (Treasuries), implying that investors may be migrating between Treasuries and corporate bonds very rapidly. They also identify that the sensitivity of junk bonds is more pronounced than that of investment-grade bonds. Finally, they document that the behavior of corporate bonds is very similar to that of their equity counterparts in that they exhibit greater sensitivity to negative macroshocks than to positive shocks.
Open Access
Crude oil moments and PNG stock returns
(Colorado State University. Libraries, 2014-04-24) Chatrath, Arjun, author; Miao, Hong, author; Ramchander, Sanjay, author; Energy Economics, publisher
We examine the risk-neutral moments of crude oil and their relationship to stock returns in the Petroleum and Natural Gas (PNG) industry. We find substantial overlaps in the association between returns and S&P 500- and crude oil higher moments. Net of these overlaps, PNG stocks share a significant negative relationship with crude volatility and positive relationships with crude skewness and kurtosis. Large cap stocks and those with a history of hedging exhibit negative loadings on crude volatility. However, after controlling for S&P 500- and crude oil returns and their risk-neutral moments, there is little evidence that PNG stocks systematically and significantly price either S&P 500- or crude oil volatility. We document a weak pricing of crude skewness, but find no evidence for the pricing of the implied higher moments of market returns.
Open Access
Currency jumps, cojumps and the role of macro news
(Colorado State University. Libraries, 2013-05) Chatrath, Arjun, author; Miao, Hong, author; Ramchander, Sanjay, author; Villupuram, Sriram, author; Journal of International Money and Finance, publisher
This study investigates the impact of macro news on currency jumps and cojumps. The analysis uses intra-day data, sampled at 5-min frequency, for four currencies for the period 2005–2010. Results indicate that currency jumps are a good proxy for news arrival. We find 9–15% of currency jumps can be directly linked to U.S. announcements. Notably, news can explain 22–56% of the 5-min jump returns, and there is evidence that better-than-expected news about the U.S. economy has a negative impact on currency jumps. Cojump statistics suggest close dependencies among European currencies, especially between the euro and the Swiss franc. We also provide evidence on the uncertainty resolution to news.
Open Access
Default prediction models: the role of forward-looking measures of returns and volatility
(Colorado State University. Libraries, 2017-07-29) Miao, Hong, author; Ramchander, Sanjay, author; Ryan, Patricia, author; Wang, Tianyang, author; Journal of Empirical Finance, publisher
This paper proposes a variant application of the Merton distance-to-default model by employing implied volatility and implied cost of capital to predict defaults. The proposed model's results are compared with predictions obtained from three popular models in different setups. We find that our "best" model, which contains forward-looking proxies of returns and volatility outperform other models, carries a default prediction accuracy rate of 89%. Additional analysis using a discrete-time hazard model indicates the pseudo-R² values from regression models that include the two forward-looking measures are as high as 51%. Overall, our results establish the informational relevance of implied cost of capital and implied volatility in predicting defaults.
Open Access
Dice game
(Colorado State University. Libraries, 2020-09-18) Wang, Tianyang, author
Open Access
Dynamic functional regression with application to the cross-section of returns
(Colorado State University. Libraries, 2017-08-28) Kokoszka, Piotr, author; Miao, Hong, author; Reimherr, Matthew, author; Taoufik, Bahaeddine, author; Journal of Financial Econometrics, publisher
Motivated by testing the significance of risk factors for a cross-section of returns, we develop an inferential framework which involves function-on-scalar regression. Asymptotic theory is developed assuming the factors form a weakly dependent vector-valued time series, and the regression errors are weakly dependent functions. To accommodate the empirical behavior of the cross-section of returns and of the factors, we allow both the factors and the error functions can exhibit mild departures from stationarity. This requires new asymptotic theory which leads to several tests for the significance of function-valued regression coefficients. The new approach to the study of the significance of risk factors for a cross-section of returns complements the established Fama–French approach based on portfolio construction. It is more suitable if the statistical significance of the risk factors is to be rigorously controlled.
Open Access
Dynamic hedging using the realized minimum-variance hedge ratio approach - examination of the CSI 300 index futures
(Colorado State University. Libraries, 2019-10) Qu, Hui, author; Wang, Tianyang, author; Zhang, Yi, author; Sun, Pengfei, author; Pacific-Basin Finance Journal, publisher
This paper investigates the dynamic hedging performance of the high frequency data based realized minimum-variance hedge ratio (RMVHR) approach. We comprehensively examine a number of popular time-series models to forecast the RMVHR for the CSI 300 index futures, and evaluate the out-of-sample dynamic hedging performance in comparison to the conventional hedging models using daily prices, as well as the vector heterogeneous autoregressive model using intraday prices. Our results show that the dynamic hedging performance of the RMVHR-based methods significantly dominates that of the conventional methods in terms of both hedging effectiveness and tracking error volatility in the out-of-sample forecast period. Furthermore, the superiority of the RMVHR-based methods is robust in different market structures and different volatility regimes, including China's abnormal market fluctuations in 2015 and the US financial crisis in 2008.
Open Access
Exchange options under clustered jumps dynamics
(Colorado State University. Libraries, 2019-10-28) Yong, Ma, author; Pan, Dongtao, author; Wang, Tianyang, author; Quantitative Finance, publisher
Exchange options are one of the most popular exotic options, and have important implications for many common financial arrangements and for implied beta as a measure of systematic risk. In this study, we extend the existing literature on exchange options to allow for clustered jump contagion dynamics in each single asset, as well as across assets, using the Hawkes jump-diffusion model. We derive the analytical pricing formulae, the Greeks, and the optimal hedging strategy via Fourier transforms. Using an illustrative numerical analysis, we present the relationship between the exchange option price and clustered jump intensities and jump sizes in the underlying assets. We discuss the managerial insights on financial arrangements with exchange option characteristics. Furthermore, we discuss the implications of incorporating clustered jumps into the estimation of implied beta with exchange options, in which the applications can be insightful and useful in finance practice.
Open Access
Extreme value theory
(Colorado State University. Libraries, 2020-09-18) Wang, Tianyang, author
Open Access
Fighting procrastination for financial wellness - harness the power of inertia
(Colorado State University. Libraries, 2017-09) Wang, Tianyang, author; Financial Wellness Essay, Society of Actuaries, publisher
The need to save for financial wellness is universal, yet planning for it is hard. According to a 2016 PricewaterhouseCoopers survey, 52% of employees report difficulty managing their personal finances. A majority of Americans today face a looming retirement crisis considering the fact that the median retirement account balance is only $2,500 for all working-age households and $14,500 for near-retirement households. More astoundingly, a recent Federal Reserve study reports that nearly half of Americans do not even have $400 in savings in case of an emergency.
Open Access
Financial risk management: introduction
(Colorado State University. Libraries, 2020-09-18) Wang, Tianyang, author
Technologies have profoundly transform the financial markets and in turn present new challenge to the financial education. For instance, as financial markets become more complex and generate more information, it also becomes more and more challenging for market participants to digest and manage the information overload. Upon completion of the course the students will develop a toolkit and will be conversant in current issues related to financial risk management including the dynamic market changes, new trends in financial analysis and a historical perspective on financial risk management.
Open Access
FinTech and Innovation I
(Colorado State University. Libraries, 2020-09-18) Wang, Tianyang, author