Journal of Asset Management最新文献

This paper studies a model proposed by Baaquie (Phys A Stat Mech Appl 541:123367, 2020b) for which a corporate bond pays coupons that are stochastic—depending on the valuation of the issuer. It is shown that by considering bonds with stochastic coupons that are ‘equivalent’ to fixed coupon bonds (defined in the paper), the price of the fixed coupon bond can be accurately explained. The proposed model of stochastic coupons has a built-in hedge for the issuer—and has the feature of profit and loss sharing between investor and issuer making it a viable instrument for Islamic finance.

Abstract

This research delves into the empirical performance of deterministic option pricing models in the dynamic financial landscape of India. The primary focus is on uncovering pricing discrepancies and discerning whether these disparities arise from inherent limitations in the theoretical foundations of the models or are influenced by the trading behaviors of market participants. The investigation centers on the analysis of call and put option contracts for the Nifty Index and Bank Nifty Index, both extensively traded on the National Stock Exchange (NSE) of India. The study’s findings highlight that models developed to address the theoretical constraints of the benchmark Black–Scholes model demonstrate noteworthy performance. However, the complexity of these models does not consistently translate into enhanced pricing efficiency. Notably, the Black–Scholes and Practitioner Black–Scholes models exhibit superior performance across various moneyness-maturity categories. Furthermore, the research underscores the substantial impact of option contract liquidity on the efficiency of the pricing models. Specifically, highly traded at-the-money and out-of-the-money option contracts exhibit a higher level of pricing accuracy.

This study presents network risk parity, a graph theory-based portfolio construction methodology that arises from a thoughtful critique of the clustering-based approach used by hierarchical risk parity. Advantages of network risk parity include: the ability to capture one-to-many relationships between securities, overcoming the one-to-one limitation; the capacity to leverage the mathematics of graph theory, which enables us, among other things, to demonstrate that the resulting portfolios is less concentrated than those obtained with mean-variance; and the ability to simplify the model specification by eliminating the dependency on the selection of a distance and linkage function. Performance-wise, due to a better representation of systematic risk within the minimum spanning tree, network risk parity outperforms hierarchical risk parity and other competing methods, especially as the number of portfolio constituents increases.

While stocks with high dividends have historically outperformed those with low dividends, we show that the difference can be completely explained by a set of well-known factors including value, quality and defensive. Applying a dividend filter to a portfolio of strategies having high exposure to these factors yields sub-optimal results. To test whether incorporating dividend yields can improve the performance of long-only factor portfolios, we construct a set of dividend-favored long-only factor portfolios with a heuristic rebalance algorithm and find that their after-tax net returns are lower than the dividend-agnostic counterparts. Collectively our results indicate that long-only active investors are better off loading directly on value, quality and defensive factors than purposely tilting their portfolios toward high-dividend stocks.

In this paper, we quantify the economic gain from accounting for departures from normality for the mean-variance (MV) investor. We provide two models that account for the key empirical regularities of financial returns: stochastic volatility, asymmetric returns, heavy tails and tail dependence. We show that accounting for departures from normality leads to significant gains in expected utility commensurate with or exceeding typical active management fees. The majority of the uplift in expected utility derives from accounting for stochastic volatility.

Investment committees are widespread across asset management firms, private and public institutional investors or family offices. Poorly designed boards can potentially destroy substantial value in the investment management industry, yet little research has been undertaken on their optimal design. From my 30-year experience as an investor, CIO for various firms and academic researcher, I believe that typical investment committees come with unaddressed challenges. Using qualitative group discussions to create a consensus view results in biases (group shift bias), incentive problems (free-rider) and aggregation problems. How can we ensure that all investment views enter the investment committee equally? In my opinion, we can learn from evidence gathered in social psychology how committees can make better investment decisions. I suggest creating an algorithmic consensus by averaging anonymous member portfolios instead of informal qualitative discussions towards the end of an investment committee meeting.

A cash-secured put-write (PUTW) strategy involves writing an at-the-money put option and setting aside enough cash to buy the underlying. Empirically, the PUTW returns outperform the returns predicted by the traditional one- three- and five-factor models. We explain the outperformance. A model where the market is subject to disasters generates a Variance Risk Premium (VRP), which reflects information about both the risk aversion and the impact of disasters. VRP, when added to the market factor, accounts for the PUTW outperformance. This factor also explains abnormal returns for other derivative strategies.