*Tid:* **28 september 2015 kl 09.15-10.00.**
**Seminarierummet 3721**, Institutionen för
matematik, KTH, Lindstedtsvägen 25, plan 7.
Karta!
*Föredragshållare:*
**
Richard Steffen
**
**Titel:**
Risk premia implied by derivative prices
(Master's thesis)
**Abstract**
The thesis investigates the potential to recover the real world
probabilities of an underlying asset from derivative prices by using
the recovery approach developed in (Carr & Yu, 2012) and (Ross,
2011). For this purpose the VIX Index and US Treasury bills are used
to recover the VIX dynamics and the short rate dynamics under the
real world probability measure. The approach implies that VIX and
its derivatives has a risk premium equal to zero contradicting empirical
evidence of a substantial negative risk premium. In fact, we
show that for any asset unrelated to the short rate its risk premium
is zero. In the case of recovering the short rate, the CIR model is calibrated
to the US zero coupon Treasury yield curve. The predictions
of the recovered CIR process is benchmarked against the risk neutral
CIR process and a naive predictor. The recovered process is found
to outperform the risk neutral process suggesting that the recovery
step was successful. However, it underperforms the naive process in
its predictions.
The full report (pdf)
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