Modelling of and empirical studies on portfolio choice, option pricing, and credit risk

S.Y. Polbennikov

Research output: ThesisDoctoral ThesisScientific

259 Downloads (Pure)

Abstract

This thesis develops and applies a statistical spanning test for mean-coherent regular risk portfolios. Similarly in spirt to Huberman and Kandel (1987), this test can be implemented by means of a simple semi-parametric instrumental variable regression, where instruments have a direct link with a stochastic discount factor. Applications to different asset classes are studied. The results are compared to the conventional mean-variance approach. The second part of the thesis concerns option pricing under stochastic volatility and credit risk modelling. It is shown that modelling dynamics of the implied prices of volatility risk can improve out-of-sample option pricing performance. Finally, an equity-based structural model of credit risk with a constant elasticity of volatility assumption is discussed. This model might be particularly suitable for analysis of high yield fixed income instruments, where correlation between credit spreads and equity returns is substantial.
Original languageEnglish
QualificationDoctor of Philosophy
Awarding Institution
  • Tilburg University
Supervisors/Advisors
  • Melenberg, Bertrand, Promotor
Award date18 Nov 2005
Place of PublicationTilburg
Publisher
Print ISBNs9056681524
Publication statusPublished - 2005

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Empirical study
Option pricing
Volatility risk
Portfolio choice
Modeling
Credit risk
Elasticity
Portfolio risk
Equity returns
Instrumental variables regression
Equity
Structural model
Credit spreads
Assets
Stochastic discount factor
Mean-variance
Stochastic volatility
Dynamic modeling
Credit risk modeling
Fixed income

Cite this

Polbennikov, S. Y. (2005). Modelling of and empirical studies on portfolio choice, option pricing, and credit risk. Tilburg: CentER, Center for Economic Research.
Polbennikov, S.Y.. / Modelling of and empirical studies on portfolio choice, option pricing, and credit risk. Tilburg : CentER, Center for Economic Research, 2005. 177 p.
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abstract = "This thesis develops and applies a statistical spanning test for mean-coherent regular risk portfolios. Similarly in spirt to Huberman and Kandel (1987), this test can be implemented by means of a simple semi-parametric instrumental variable regression, where instruments have a direct link with a stochastic discount factor. Applications to different asset classes are studied. The results are compared to the conventional mean-variance approach. The second part of the thesis concerns option pricing under stochastic volatility and credit risk modelling. It is shown that modelling dynamics of the implied prices of volatility risk can improve out-of-sample option pricing performance. Finally, an equity-based structural model of credit risk with a constant elasticity of volatility assumption is discussed. This model might be particularly suitable for analysis of high yield fixed income instruments, where correlation between credit spreads and equity returns is substantial.",
author = "S.Y. Polbennikov",
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language = "English",
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Polbennikov, SY 2005, 'Modelling of and empirical studies on portfolio choice, option pricing, and credit risk', Doctor of Philosophy, Tilburg University, Tilburg.

Modelling of and empirical studies on portfolio choice, option pricing, and credit risk. / Polbennikov, S.Y.

Tilburg : CentER, Center for Economic Research, 2005. 177 p.

Research output: ThesisDoctoral ThesisScientific

TY - THES

T1 - Modelling of and empirical studies on portfolio choice, option pricing, and credit risk

AU - Polbennikov, S.Y.

PY - 2005

Y1 - 2005

N2 - This thesis develops and applies a statistical spanning test for mean-coherent regular risk portfolios. Similarly in spirt to Huberman and Kandel (1987), this test can be implemented by means of a simple semi-parametric instrumental variable regression, where instruments have a direct link with a stochastic discount factor. Applications to different asset classes are studied. The results are compared to the conventional mean-variance approach. The second part of the thesis concerns option pricing under stochastic volatility and credit risk modelling. It is shown that modelling dynamics of the implied prices of volatility risk can improve out-of-sample option pricing performance. Finally, an equity-based structural model of credit risk with a constant elasticity of volatility assumption is discussed. This model might be particularly suitable for analysis of high yield fixed income instruments, where correlation between credit spreads and equity returns is substantial.

AB - This thesis develops and applies a statistical spanning test for mean-coherent regular risk portfolios. Similarly in spirt to Huberman and Kandel (1987), this test can be implemented by means of a simple semi-parametric instrumental variable regression, where instruments have a direct link with a stochastic discount factor. Applications to different asset classes are studied. The results are compared to the conventional mean-variance approach. The second part of the thesis concerns option pricing under stochastic volatility and credit risk modelling. It is shown that modelling dynamics of the implied prices of volatility risk can improve out-of-sample option pricing performance. Finally, an equity-based structural model of credit risk with a constant elasticity of volatility assumption is discussed. This model might be particularly suitable for analysis of high yield fixed income instruments, where correlation between credit spreads and equity returns is substantial.

M3 - Doctoral Thesis

SN - 9056681524

T3 - CentER Dissertation Series

PB - CentER, Center for Economic Research

CY - Tilburg

ER -

Polbennikov SY. Modelling of and empirical studies on portfolio choice, option pricing, and credit risk. Tilburg: CentER, Center for Economic Research, 2005. 177 p. (CentER Dissertation Series ).