Market Prices of Risk and Return Predictability in a Joint Stock-Bond Pricing Model

2002 ◽  
Author(s):  
Harry Mamaysky
Keyword(s):  
Return Predictability ◽  
Bond Pricing ◽  
Pricing Model ◽  
Risk And Return ◽  
Market Prices

Risk and Return of Retail Sukuk and Retail Bond in Indonesia Period 2008-2017 (Comparative Study)

2020 ◽  
Vol 15 (1) ◽  
Author(s):  
Rahma Yudi Astuti ◽  
Asad Arsya Brilliant Fani
Keyword(s):  
Standard Deviation ◽  
Comparative Study ◽  
Stock Exchange ◽  
Secondary Data ◽  
Bond Market ◽  
Bond Pricing ◽  
Risk And Return ◽  
Underlying Asset ◽  
The Real ◽  
The World

Sukuk and Bonds has differences and similarities. Fundamental differences between sukuk and bonds are first, underlying asset in every sukuk issuance, concept of profit loss sharing and the use of Islamic contracts. Whereas conducted research in practice of differences between sukuk and bonds are still an on-going discussion. This study aims to add the evidence in the discussion regarding whether there is differences between sukuk and bonds in the world of practice, provide investment preferences as well as educating investors in choosing sukuk or bonds as a sustainable and smooth instrument. The method used is Mann Whitney U-Test to test whether there is a different between yield to maturity (return) and standard deviation (risk) of both instruments. Using secondary data of Retail Sukuk (SR) and Retail Bonds (ORI) period 2008-2017 obtained from Indonesia Stock Exchange, Indonesia Bond Market Directory and Indonesia Bond Pricing Agency. The result shows that there is no significance difference of retail sukuk return and risk with retail bonds in Indonesia. Besides retail bonds are show higher return than retail sukuk because of higher coupon and longest mature date. While, retail sukuk is more stable rather than bonds as it backed up by the real underlying asset. Keywords: Retail Sukuk (SR), Retail Bonds (ORI), Yield to Maturity

scholarly journals Is Human Capital the Sixth Factor? Evidence from US Data

2019 ◽  
Vol 8 (1) ◽  
pp. 21-55 ◽  
Author(s):  
Rahul Roy ◽  
Santhakumar Shijin
Keyword(s):  
Human Capital ◽  
Asset Pricing ◽  
Factor Model ◽  
Generalized Method Of Moments ◽  
Common Factors ◽  
Return Predictability ◽  
Pricing Model ◽  
Gmm Estimation ◽  
Asset Return ◽  
Asset Pricing Model

Problem/Relevance: Measuring the risk of an asset and the economic forces driving the price of the risk is a challengingtask that preoccupied the asset pricing literature for decades. However, there exists no consensus on the integrated asset pricing framework among the financial economists in the contemporaneous asset pricing literature. Thus, we consider and study this research problem that has greater relevance in pricing the risks of an asset. In this backdrop, we develop an integrated equilibrium asset pricing model in an intertemporal (ICAPM) framework. Research Objective/Questions: Broadly we have two research objectives. First, we examine the joint dynamics of the human capital component and common factors in approximating the variation in asset return predictability. Second, we test whether the human capital component is the unaccounted and the sixth pricing factor of FF five-factor asset pricing model. Additionally, we assess the economic and statistical significance of the equilibrium six-factor asset pricing model. Methodology: The human capital component, market portfolio, size, value, profitability, and investment are the pricing factors of the equilibrium six-factor asset pricing model. We use Fama-French (FF) portfolios of 2  3, 5  5, 10  10 sorts, 2  4  4 sorts, and the Industry portfolios to examine the equilibrium six-factor asset pricing model. The Generalized method of moments (GMM) estimation is used to estimate the parameters of variant asset pricing models and Gibbons-Ross-Shanken test is employed to evaluate the performance of the variant asset pricing frameworks. Major Findings: Our approaches led to three conclusions. First, the GMM estimation result infers that the human capital component of the six-factor asset pricing model significantly priced the variation in excess return on FF portfolios of variant sorts and the Industry portfolios. Further, the sensitivity to human capital component priced separately in the presence of the market portfolios and the common factors. Second, the six-factor asset pricing model outperforms the CAPM, FF three-factor model, and FF five-factor model, which indicates that the human capital component is a significant pricing factor in asset return predictability. Third, we argue that the human capital component is the unaccounted asset pricing factor and equally the sixth-factor of the FF five-factor asset pricing model. The additional robustness test result confirms that the parameter estimation of the six-factor asset pricing model is robust to the alternative definitions of the human capital component. Implications: The empirical results and findings equally pose the more significant effects for the decision-making process of the rational investor, institutional managers, portfolio managers, and fund managers in formulating the better investment strategies, which can help in diversifying the aggregate risks.

scholarly journals On a New Corporate Bond Pricing Model with Potential Credit Rating Change and Stochastic Interest Rate

2018 ◽  
Vol 11 (4) ◽  
pp. 87 ◽  
Author(s):  
Hong-Ming Yin ◽  
Jin Liang ◽  
Yuan Wu
Keyword(s):  
Interest Rate ◽  
Credit Rating ◽  
Corporate Bond ◽  
Bond Pricing ◽  
Stochastic Interest Rate ◽  
Pricing Model ◽  
New Model ◽  
Stochastic Interest ◽  
The Interest Rate ◽  
Rating Change

In this paper, we consider a new corporate bond-pricing model with credit-rating migration risks and a stochastic interest rate. In the new model, the criterion for rating change is based on a predetermined ratio of the corporation’s total asset and debt. Moreover, the rating changes are allowed to happen a finite number of times during the life-span of the bond. The volatility of a corporate bond price may have a jump when a credit rating for the bond is changed. Moreover, the volatility of the bond is also assumed to depend on the interest rate. This new model improves the previous existing bond models in which the rating change is only allowed to occur once with an interest-dependent volatility or multi-ratings with constant interest rate. By using a Feynman-Kac formula, we obtain a free boundary problem. Global existence and uniqueness are established when the interest rate follows a Vasicek’s stochastic process. Calibration of the model parameters and some numerical calculations are shown.

scholarly journals Integrability analysis of the partial differential equation describing the classical bond-pricing model of mathematical finance

Open Physics ◽  
2018 ◽  
Vol 16 (1) ◽  
pp. 766-779
Author(s):  
Taha Aziz ◽  
Aeeman Fatima ◽  
Chaudry Masood Khalique
Keyword(s):  
Differential Equation ◽  
Partial Differential Equation ◽  
Heat Equation ◽  
Canonical Form ◽  
Mathematical Finance ◽  
Fundamental Solutions ◽  
Bond Pricing ◽  
Canonical Forms ◽  
Pricing Model ◽  
Invariant Approach

AbstractThe invariant approach is employed to solve the Cauchy problem for the bond-pricing partial differential equation (PDE) of mathematical finance. We first briefly review the invariant criteria for a scalar second-order parabolic PDE in two independent variables and then utilize it to reduce the bond-pricing equation to different Lie canonical forms. We show that the invariant approach aids in transforming the bond-pricing equation to the second Lie canonical form and that with a proper parametric selection, the bond-pricing PDE can be converted to the first Lie canonical form which is the classical heat equation. Different cases are deduced for which the original equation reduces to the first and second Lie canonical forms. For each of the cases, we work out the transformations which map the bond-pricing equation into the heat equation and also to the second Lie canonical form. We construct the fundamental solutions for the bond-pricing model via these transformations by utilizing the fundamental solutions of the classical heat equation as well as solution to the second Lie canonical form. Finally, the closed-form analytical solutions of the Cauchy initial value problems for the bond-pricing model with proper choice of terminal conditions are obtained.

scholarly journals Pricing Convertible Bonds with Credit Risk under Regime Switching and Numerical Solutions

2014 ◽  
Vol 2014 ◽  
pp. 1-13
Author(s):  
Wei-Guo Zhang ◽  
Ping-Kang Liao
Keyword(s):  
Credit Risk ◽  
Regime Switching ◽  
Numerical Solutions ◽  
Dilution Effect ◽  
Convertible Bonds ◽  
Bond Pricing ◽  
Convertible Bond ◽  
Pricing Model ◽  
Black Scholes ◽  
The Impact

This paper discusses the convertible bonds pricing problem with regime switching and credit risk in the convertible bond market. We derive a Black-Scholes-type partial differential equation of convertible bonds and propose a convertible bond pricing model with boundary conditions. We explore the impact of dilution effect and debt leverage on the value of the convertible bond and also give an adjustment method. Furthermore, we present two numerical solutions for the convertible bond pricing model and prove their consistency. Finally, the pricing results by comparing the finite difference method with the trinomial tree show that the strength of the effect of regime switching on the convertible bond depends on the generator matrix or the regime switching strength.

Empirically Effective Bond Pricing Model and Analysis on Term Structures of Implied Interest Rates in Financial Crisis

2011 ◽  
Vol 19 (3) ◽  
pp. 259-292 ◽  
Author(s):  
Takeaki Kariya ◽  
Jingsui Wang ◽  
Zhu Wang ◽  
Eiichi Doi ◽  
Yoshiro Yamamura
Keyword(s):  
Financial Crisis ◽  
Interest Rates ◽  
Bond Pricing ◽  
Pricing Model ◽  
Term Structures

Corporate bond pricing model with stochastically volatile firm value process

2016 ◽  
Vol 148 ◽  
pp. 41-44
Author(s):  
Woon Wook Jang ◽  
Young Ho Eom ◽  
Yong Joo Kang
Keyword(s):  
Firm Value ◽  
Corporate Bond ◽  
Bond Pricing ◽  
Pricing Model
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