SSRN Author: Robert A. JarrowRobert A. Jarrow SSRN Content
http://www.ssrn.com/author=16130
http://www.ssrn.com/rss/en-usThu, 01 Dec 2016 12:53:37 GMTeditor@ssrn.com (Editor)Thu, 01 Dec 2016 12:53:37 GMTwebmaster@ssrn.com (WebMaster)SSRN RSS Generator 1.0REVISION: Asset Market Equilibrium with Liquidity RiskThis paper derives an equilibrium asset pricing model with liquidity risk. Liquidity risk is modeled as a stochastic quantity impact on the price from trading, where the size of the impact depends on trade size. Under a mild set of assumptions, we prove that an equilibrium price process exists for our economy and we characterize the market’s state price density, which enables the derivation of the risk-return relation for the stock’s expected return including liquidity risk. In contrast to the traditional models without liquidity risk, there is an additional systematic liquidity risk factor which is related to the stock return’s covariation with the market’s stochastic liquidity cost. Traditional transaction costs are a special case of our formulation.
http://www.ssrn.com/abstract=2653914
http://www.ssrn.com/1522004.htmlTue, 23 Aug 2016 14:41:15 GMTREVISION: Exploring Statistical Arbitrage Opportunities in the Term Structure of CDS SpreadsBased on a reduced-form model of credit risk, we explore statistical arbitrage opportunities in the CDS spreads of North American companies. Specifically, we develop a trading strategy using the model to trade market-neutral portfolios while controlling for realistic transaction costs. Empirical results show that our arbitrage strategy is of significant economic value, and also cast doubt on the efficiency of the CDS market. The aggregate returns of the trading strategy are positively related to the square of market-wide credit and liquidity risks, indicating that the market is less efficient when it is more volatile.
http://www.ssrn.com/abstract=2686284
http://www.ssrn.com/1516811.htmlTue, 02 Aug 2016 14:32:23 GMTREVISION: Exploring Statistical Arbitrage Opportunities in the Term Structure of CDS SpreadsBased on a reduced-form model of credit risk, we explore statistical arbitrage opportunities in the CDS spreads of North American companies. Specifically, we develop a trading strategy using the model to trade market-neutral portfolios while controlling for realistic transaction costs. Empirical results show that our arbitrage strategy is of significant economic value, and also cast doubt on the efficiency of the CDS market. The aggregate returns of the trading strategy are positively related to the square of market-wide credit and liquidity risks, indicating that the market is less efficient when it is more volatile.
http://www.ssrn.com/abstract=2686284
http://www.ssrn.com/1494301.htmlFri, 06 May 2016 14:08:29 GMTREVISION: On the Existence of Competitive Equilibrium in Frictionless and Incomplete Stochastic Asset MarketsUsing a standard frictionless, continuous time, and continuous trading stochastic economy with heterogeneous beliefs, the purpose of this paper is to provide sufficient conditions for the existence of competitive equilibrium in an incomplete asset market. A new approach to proving existence is provided, which is readily generalized to markets with frictions, including trading constraints and transaction costs. As a second contribution, this paper also proves the existence of bubble equilibrium in a market without trading constraints. We show that bubbles can exist solely due heterogeneous beliefs about the evolution of an asset’s market price process.
http://www.ssrn.com/abstract=2688600
http://www.ssrn.com/1490395.htmlSun, 24 Apr 2016 14:34:09 GMTREVISION: On the Existence of Competitive Equilibrium in Frictionless and Incomplete Stochastic Asset MarketsUsing a standard frictionless, continuous time, and continuous trading stochastic economy with heterogeneous beliefs, the purpose of this paper is to provide sufficient conditions for the existence of competitive equilibrium in an incomplete asset market. A new approach to proving existence is provided, which is readily generalized to markets with frictions, including trading constraints and transaction costs. As a second contribution, this paper also proves the existence of bubble equilibrium in a market without trading constraints. We show that bubbles can exist solely due heterogeneous beliefs about the evolution of an asset’s market price process.
http://www.ssrn.com/abstract=2688600
http://www.ssrn.com/1479083.htmlTue, 15 Mar 2016 10:08:54 GMTREVISION: Asset Market Equilibrium with Liquidity RiskThis paper derives an equilibrium asset pricing model with liquidity risk. Liquidity risk is modeled as a stochastic quantity impact on the price from trading, where the size of the impact depends on trade size. Under a mild set of assumptions, we prove that an equilibrium price process exists for our economy and we characterize the market’s state price density, which enables the derivation of the risk-return relation for the stock’s expected return including liquidity risk. In contrast to the traditional models without liquidity risk, there is an additional systematic liquidity risk factor which is related to the stock return’s covariation with the market’s stochastic liquidity cost. Traditional transaction costs are a special case of our formulation.
http://www.ssrn.com/abstract=2653914
http://www.ssrn.com/1479081.htmlTue, 15 Mar 2016 10:05:48 GMTREVISION: Exploring Statistical Arbitrage Opportunities in the Term Structure of CDS SpreadsThe rapid growth of the CDS market makes it possible to speculate on the relative pricing of the credit risk of a company across a wide range of maturities. Based on a reduced-form model of credit risk, we explore statistical arbitrage opportunities in the term structure of CDS spreads of a large number of companies in North America. Specifically, we estimate an affine model for the term structure of CDS spreads of a given company and identify mis-valued CDS contracts along the credit curve. We trade market-neutral portfolios of mis-valued CDS contracts relative to our model, betting that the mis-valuation will disappear over time while controlling for reasonable transaction costs. Empirical analysis shows that our arbitrage strategy is of significant economic value after transaction costs, and also imply that the common impression that this market is both liquid and competitive is questionable. The aggregate returns of the trading strategy are positively related to the square of the ...
http://www.ssrn.com/abstract=2686284
http://www.ssrn.com/1464573.htmlWed, 27 Jan 2016 13:50:51 GMTREVISION: On the Existence of Competitive Equilibrium in Frictionless and Incomplete Stochastic Asset MarketsUsing a standard frictionless, continuous time, and continuous trading stochastic economy with heterogeneous beliefs, the purpose of this paper is to provide sufficient conditions for the existence of competitive equilibrium in an incomplete asset market. A new approach to proving existence is provided, which is readily generalized to markets with frictions, including trading constraints and transaction costs. As a second contribution, this paper also proves the existence of bubble equilibrium in a market without trading constraints. We show that bubbles can exist solely due heterogeneous beliefs about the evolution of an asset’s market price process.
http://www.ssrn.com/abstract=2688600
http://www.ssrn.com/1464460.htmlWed, 27 Jan 2016 11:42:48 GMTREVISION: Asset Market Equilibrium with Liquidity RiskThis paper derives an equilibrium asset pricing model with liquidity risk. Liquidity risk is modeled as a stochastic quantity impact on the price from trading, where the size of the impact depends on trade size. Under a mild set of assumptions, we prove that an equilibrium price process exists for our economy and we characterize the market’s state price density, which enables the derivation of the risk-return relation for the stock’s expected return including liquidity risk. In contrast to the traditional models without liquidity risk, there is an additional systematic liquidity risk factor which is related to the stock return’s covariation with the market’s stochastic liquidity cost. Traditional transaction costs are a special case of our formulation.
http://www.ssrn.com/abstract=2653914
http://www.ssrn.com/1464477.htmlWed, 27 Jan 2016 11:40:10 GMTREVISION: On the Existence of Competitive Equilibrium in Frictionless and Incomplete Stochastic Asset MarketsUsing a standard frictionless, continuous time, and continuous trading stochastic economy with heterogeneous beliefs, the purpose of this paper is to provide sufficient conditions for the existence of competitive equilibrium in an incomplete asset market. A new approach to proving existence is provided, which is readily generalized to markets with frictions, including trading constraints and transaction costs. As a second contribution, this paper also proves the existence of bubble equilibrium in a market without trading constraints. We show that bubbles can exist solely due heterogeneous beliefs about the evolution of an asset’s market price process.
http://www.ssrn.com/abstract=2688600
http://www.ssrn.com/1455220.htmlWed, 23 Dec 2015 03:31:31 GMTREVISION: Asset Market Equilibrium with Liquidity RiskThis paper derives an equilibrium asset pricing model with liquidity risk. Liquidity risk is modeled as a stochastic quantity impact on the price from trading, where the size of the impact depends on trade size. Under a mild set of assumptions, we prove that an equilibrium price process exists for our economy and we characterize the market’s state price density, which enables the derivation of the risk-return relation for the stock’s expected return including liquidity risk. In contrast to the traditional models without liquidity risk, there is an additional systematic liquidity risk factor which is related to the stock return’s covariation with the market’s stochastic liquidity cost. Traditional transaction costs are a special case of our formulation.
http://www.ssrn.com/abstract=2653914
http://www.ssrn.com/1453991.htmlFri, 18 Dec 2015 12:53:51 GMTNew: On Aggregation and Representative Agent EquilibriaAggregation is an often used tool in finance and macroeconomics, whereby economic equilibrium in a heterogeneous trader economy is characterized by means of the first order optimality conditions of a representative agent. In this paper we study the conditions under which a representative agent exists, and investigate the implications for the existence of equilibrium. The approach applies to markets which are incomplete, including markets with trading constraints, heterogeneous beliefs, and differential information.
http://www.ssrn.com/abstract=2698395
http://www.ssrn.com/1450033.htmlFri, 04 Dec 2015 14:06:21 GMT