Volatility Discovery Across Stock Limit Order Book and Options Markets

Foucault [Journal of Financial Markets, 2, 99–134, 1999] provides a theoretical basis for how stock price volatility influences the aggressiveness of limit order traders. I investigate volatility discovery across stock limit order book and options markets using a broad panel of NYSE‐listed stocks from November 2007 to January 2008 and find strong evidence that, as predicted, the aggressiveness of the stock limit order book and option volatility trading Granger‐cause each other. Further, I find that the aggressiveness of the stock limit order book and option volatility trading are inversely related, which is both statistically and economically significant. © 2013 Wiley Periodicals, Inc. Jrl Fut Mark 34:934–956, 2014Peer Reviewedhttp://deepblue.lib.umich.edu/bitstream/2027.42/108316/1/fut21628.pd

Essays in discrete time asset pricing

Most discrete time literature uses the beta that results from a regression of an asset\u27s simple returns on various factors to quantify risk. The departing point for this thesis is the consistent use of log-returns. When log-returns are considered, the relevant measure of systematic risk becomes the log-return beta. A statistical transformation, the Cumulant Generating Function, captures risk premia. Distributional CAPM, directly connects risk premia to return distributions. In the second chapter, I develop discrete time asset pricing for affine economies. I define a discrete time affine process as one where the conditional cumulant generating function is affine in the current state. Equivalently conditional cumulants are affine. Based on this definition, I derive closed-form prices for bonds, and bond options. Given the newly developed definition of a discrete-time affine process, I extend the square-root diffusion without violating its affine character. In the third chapter, I define the π-process, a non-trivial generalization of the square-root diffusion in discrete-time. The conditional distribution of a square-root diffusion, a scaled non-central chi-square, depends on the state through its non-centrality parameter: q. In a π-process, both the non-centrality, and, the degrees of freedom ν become affine functions of the current state. This definition creates a multifactor process that can be used to model conditional heteroscedasticity beyond the traditional GARCH paradigm. The additional benefit is that financial assets and derivatives are easily priced in discrete time. In the fourth chapter, I quantify the effect of an increased flow of information on fixed income assets. Flow of information is modeled as the discreteness τ in a discrete-time economy. I model two otherwise identical economies that differ only with respect to the speed at which information is incorporated into the production process. The “old” economy can only incorporate new information every quarter while the “new” economy incorporates shocks as fast as every week. Both economies are calibrated with US data. I find an increased volatility for bond prices in the “new” economy that results in substantially increased option prices

Essays in discrete time asset pricing

Most discrete time literature uses the beta that results from a regression of an asset\u27s simple returns on various factors to quantify risk. The departing point for this thesis is the consistent use of log-returns. When log-returns are considered, the relevant measure of systematic risk becomes the log-return beta. A statistical transformation, the Cumulant Generating Function, captures risk premia. Distributional CAPM, directly connects risk premia to return distributions. In the second chapter, I develop discrete time asset pricing for affine economies. I define a discrete time affine process as one where the conditional cumulant generating function is affine in the current state. Equivalently conditional cumulants are affine. Based on this definition, I derive closed-form prices for bonds, and bond options. Given the newly developed definition of a discrete-time affine process, I extend the square-root diffusion without violating its affine character. In the third chapter, I define the π-process, a non-trivial generalization of the square-root diffusion in discrete-time. The conditional distribution of a square-root diffusion, a scaled non-central chi-square, depends on the state through its non-centrality parameter: q. In a π-process, both the non-centrality, and, the degrees of freedom ν become affine functions of the current state. This definition creates a multifactor process that can be used to model conditional heteroscedasticity beyond the traditional GARCH paradigm. The additional benefit is that financial assets and derivatives are easily priced in discrete time. In the fourth chapter, I quantify the effect of an increased flow of information on fixed income assets. Flow of information is modeled as the discreteness τ in a discrete-time economy. I model two otherwise identical economies that differ only with respect to the speed at which information is incorporated into the production process. The “old” economy can only incorporate new information every quarter while the “new” economy incorporates shocks as fast as every week. Both economies are calibrated with US data. I find an increased volatility for bond prices in the “new” economy that results in substantially increased option prices

The Recovery of Unlawful Tax in Canada: Re-evaluating the Kingstreet Cause of Action in light of Developments in the Law of Unjust Enrichment in Canada and England

A decade after Kingstreet Investments Ltd v New Brunswick, this thesis re-evaluates the Supreme Court of Canada’s rejection of unjust enrichment in favour of a standalone public law restitutionary cause of action for the recovery of unlawful tax. I argue that the recognition of the Kingstreet cause of action threatens the coherence of the Canadian law of restitution and is inconsistent with more recent jurisprudence permitting unjust enrichment claims against the Crown in other contexts. I also argue that the Supreme Court’s doubts about whether the levying of unlawful tax constitutes an enrichment in the Crown’s hands (and a deprivation on the taxpayer’s part) are largely misplaced. Analyzing recent developments in both Canadian and English law, I contend that the law of unjust enrichment is perfectly capable of providing an adequate route to recovery while protecting the important constitutional principles at stake in unlawful tax cases.LL.M

On the Concavity of Jump Equity Premia

The inherent incompleteness of continuous-time economies driven by market microstructure noise (modeled here as a Lévy process) forces agents to price assets in new ways that have no analog in the dynamically complete continuous-path markets driven by a diffusion. It is shown that microstructure risk premia are nonlinear functions of beta. The novel insight, counter to intuition, is that risk premia for stocks exposed to any type of negative Lévy jumps are a concave function of their beta