Essays on model uncertainty in financial models

Jing Li

Research output: ThesisDoctoral ThesisScientific

162 Downloads (Pure)

Abstract

This dissertation studies model uncertainty, particularly in financial models. It consists of two empirical chapters and one theoretical chapter. The first empirical chapter (Chapter 2) classifies model uncertainty into parameter uncertainty and misspecification uncertainty. It investigates the impact of model uncertainty on bond pricing with affine term structure models, and finds the significant impact of misspecification uncertainty. As an extension, the second empirical chapter (Chapter 3) proposes a prediction interval incorporating misspecification uncertainty, and studies the funding ratio in a defined-benefit pension system. The last chapter (Chapter 4) proposes a time-consistent method to incorporate model uncertainty in an investment-consumption problem, and studies portfolio rules and asset pricing in theory. It shows the necessity to consider misspecification uncertainty to explain the equity risk premium puzzle. Overall, this dissertation demonstrates that model uncertainty, especially misspecification uncertainty, is non-negligible in applying and constructing financial models.
Original languageEnglish
QualificationDoctor of Philosophy
Awarding Institution
  • Tilburg University
Supervisors/Advisors
  • Melenberg, Bertrand, Promotor
  • Ghirardato, Paolo, Promotor, External person
Award date17 Jan 2018
Place of PublicationTilburg
Publisher
Print ISBNs978 90 5668 548 5
Publication statusPublished - 2018

Fingerprint

Misspecification
Uncertainty
Model uncertainty
Financial models
Parameter uncertainty
Pension system
Asset pricing
Affine term structure models
Equity risk premium
Funding
Prediction interval
Defined benefit
Bond pricing

Cite this

Li, J. (2018). Essays on model uncertainty in financial models. Tilburg: CentER, Center for Economic Research.
Li, Jing. / Essays on model uncertainty in financial models. Tilburg : CentER, Center for Economic Research, 2018. 169 p.
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Li, J 2018, 'Essays on model uncertainty in financial models', Doctor of Philosophy, Tilburg University, Tilburg.

Essays on model uncertainty in financial models. / Li, Jing.

Tilburg : CentER, Center for Economic Research, 2018. 169 p.

Research output: ThesisDoctoral ThesisScientific

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AB - This dissertation studies model uncertainty, particularly in financial models. It consists of two empirical chapters and one theoretical chapter. The first empirical chapter (Chapter 2) classifies model uncertainty into parameter uncertainty and misspecification uncertainty. It investigates the impact of model uncertainty on bond pricing with affine term structure models, and finds the significant impact of misspecification uncertainty. As an extension, the second empirical chapter (Chapter 3) proposes a prediction interval incorporating misspecification uncertainty, and studies the funding ratio in a defined-benefit pension system. The last chapter (Chapter 4) proposes a time-consistent method to incorporate model uncertainty in an investment-consumption problem, and studies portfolio rules and asset pricing in theory. It shows the necessity to consider misspecification uncertainty to explain the equity risk premium puzzle. Overall, this dissertation demonstrates that model uncertainty, especially misspecification uncertainty, is non-negligible in applying and constructing financial models.

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Li J. Essays on model uncertainty in financial models. Tilburg: CentER, Center for Economic Research, 2018. 169 p. (CentER Dissertation Series).