Asset Pricing - B. Philipp Kellerhals

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Résumé :
The modern field of asset pricing asks for sound pricing models grounded on the theory of financial economies a la Ingersoll (1987) as weIl as for accu? rate estimation techniques a la Hamilton (1994b) when it comes to empirical inferences of the specified model. The idea behind this book on hand is to provide the reader with a canonical framework that shows how to bridge the gap between the continuous-time pricing practice in financial engineering and the capital market data inevitably only available at discrete time intervals. Three major financial markets are to be examined for which we select the equity market, the bond market, and the electricity market. In each mar? ket we derive new valuation models to price selected financial instruments in continuous-time. The decision criterium for choosing a continuous-time model? ing framework is the richness of the stochastic theory available for continuous? time processes with Merton's pioneering contributions to financial economics, collected in Merton (1992). The continuous-time framework, reviewed and as? sessed by Sundaresan (2000), allows us to obtain analytical pricing formulae that would be unavailable in a discrete time setting. However, at the time of implementing the derived theoretical pricing models on market data, that is necessarily sampled at discrete time intervals, we work with so-called exact discrete time equivalents a la Bergstrom (1984). We show how to conveniently work within astate space framework which we derive in a general setting as weIl as explicitly for each of the three applications.

Sommaire:
I Asset Pricing Framework.- 1 Financial Modeling.- 1.1 Continuous-Time Stochastics.- 1.1.1 Stochastic Processes and Brownian Motion.- 1.1.2 Martingales, It? Calculus, and Changes of Measure.- 1.2 Arbitrage Pricing in Continuous Time.- 1.2.1 PDE Approach.- 1.2.2 EMM Approach.- 2 Estimation Principles.- 2.1 State Space Notation.- 2.2 Filtering Algorithms.- 2.2.1 Filtering Objective.- 2.2.2 Optimal Estimator.- 2.2.3 Filter Recursions.- 2.2.4 Extended Kalman Filtering.- 2.3 Parameter Estimation.- II Pricing Equities.- 3 Introduction and Survey.- 3.1 Opening Remarks.- 3.2 Closed-End Funds: Survey and Hypotheses.- 4 Valuation Model.- 4.1 Characteristics of Closed-End Funds.- 4.2 Economic Foundation.- 4.3 Pricing Closed-End Fund Shares.- 5 First Empirical Results.- 5.1 Sample Data.- 5.2 Implemented Model.- 5.3 State Space Form.- 5.4 Closed-End Fund Analysis.- 6 Implications for Investment Strategies.- 6.1 Testing the Forecasting Power.- 6.1.1 Setup of Forecasting Study.- 6.1.2 Evidence on Forecasting Quality.- 6.2 Implementing Trading Rules.- 6.2.1 Experimental Design.- 6.2.2 Test Results on Trading Strategies.- 7 Summary and Conclusions.- III Pricing Fixed-Income Securites.- 8 Introduction and Survey.- 8.1 Overview.- 8.2 Bond Prices and Interest Rates.- 8.3 Dynamic Term Structure Models.- 9 Term Structure Model.- 9.1 Modeling an Incomplete Market.- 9.2 Motivation for a Stochastic Risk Premium.- 9.3 Economic Model.- 10 Initial Characteristic Results.- 10.1 Valuing Discount Bonds.- 10.2 Term Structures of Interest Rates and Volatilities.- 10.2.1 Spot and Forward Rate Curves.- 10.2.2 Term Structure of Volatilities.- 10.3 Analysis of Limiting Cases.- 10.3.1 Reducing to an Ornstein-Uhlenbeck Process.- 10.3.2 Examining the Asymptotic Behavior.- 10.4 Possible Shapes of the Term Structures.- 10.4.1 Influences of the State Variables.- 10.4.2 Choosing the Model Parameters.- 11 Risk Management and Derivatives Pricing.- 11.1 Management of Interest Rate Risk.- 11.2 Pricing Interest Rate Derivatives.- 11.2.1 Bond Options.- 11.2.2 Swap Contracts.- 11.2.3 Interest Rate Caps and Floors.- 12 Calibration to Standard Instruments.- 12.1 Estimation Techniques for Term Structure Models.- 12.2 Discrete Time Distribution of the State Variables.- 12.3 US Treasury Securities.- 12.3.1 Data Analysis.- 12.3.2 Parameter Estimation.- 12.3.3 Analysis of the State Variables.- 12.4 Other Liquid Markets.- 12.4.1 Appropriate Filtering Algorithm.- 12.4.2 Sample Data and Estimation Results.- 13 Summary and Conclusions.- IV Pricing Electricity Forwards.- 14 Introduction and Survey.- 14.1 Overview.- 14.2 Commodity Futures Markets.- 14.3 Pricing Commodity Futures.- 14.4 Asset Pricing in Electricity Markets.- 15 Electricity Pricing Model.- 15.1 Model Assumptions and Risk-Neutral Pricing.- 15.2 Valuation of Electricity Forwards.- 16 Empirical Inference.- 16.1 Estimation Model.- 16.1.1 Distribution of the State Variables.- 16.1.2 State Space Formulation and Kalman Filter Setup.- 16.2 Data Analysis and Estimation Results.- 17 Summary and Conclusions.- List of Symbols and Notation.- List of Tables.- List of Figures.- References.