On Tuesday, July 3 at 11.00 am International Laboratory of Financial Economics held Workshop >>
On Tuesday, July 3 at 11.00 am International Laboratory of Financial Economics held Workshop
Venue: Pokrovski Bulvar, 11, Room Zh-822
Stanislav Khrapov (New Economic School)
Theme: «Pricing Central Tendency in Volatility»
Abstact: It is widely accepted that there is a risk of fluctuating volatility. There is some evidence, analogously to long-term consumption risk literature or central tendency in interest rates, that there exists a slowly varying component in volatility. Volatility literature concentrates on investigation of two-factor volatility process, with one factor being very persistent. I propose a different parametrization of volatility process that includes this persistent component as a stochastic central tendency. The reparametrization is observationally equivalent but has compelling economic interpretation. I estimate the historical and riskneutral parameters of the model jointly using GMM with the data on realized volatility and VIX volatility index and treating central tendency as completely unobservable. The main empirical result of the paper is that on average the volatility premium is mainly due to the premium on highly persistent shocks of the central tendency.
Dmitry Makarov (New Economic School)
Theme: «Capital Market Equilibrium with Competition among Institutional Investors» with Sergei Glebkin
Abstact: We develop a dynamic general equilibrium model to study how competition among institutional investors affects the stock market characteristics - level, expected return, and volatility. We consider an economy in which multiple fund managers strategically interact with each other, as each manager tries to increase her performance relative to the others. We fully characterize an equilibrium in this economy, and find that a more intense competition is associated with a higher level of the market, lower expected market return, while market volatility is not affected by competition. These findings are broadly consistent with the data.
Sergey Gelman (Higher School of Economics)
Theme: «Subjective vs. risk-neutral probabilities of takeover: room for arbitrage?»
Abstact: This paper deals with the question, whether subjective probabilities of takeover completion, estimated from current observable spot-prices of target stock, from expected bid price and from current forecasted "stand-alone" price of target stock, correspond to the option-implied risk-neutral distribution. Using nonparametric approach it can be shown, that observed option prices yield higher probabilities of takeover completion than Black-Scholes lognormal distribution, but still much lower, than the subjective probability. A delta hedged position exploiting this discrepancy in probabilities earns significant profits
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