Speaker : Li Haitao (University of Michigan)
Date : November 10, 2012 (Saturday)
Venue : Lecture Theatre E, Academic Concourse, Hong Kong University of Science and Technology
Lecture : 4:00pm – 5:00pm
Inquiry : hkqf_help@[NO-SPAM]se.cuhk.edu.hk
ABSTRACT: We develop affine jump term structure models (AJTSMs), in
which the state variables follow affine jump-diffusions, and provide a
comprehensive empirical analysis of three-factor AJTSMs using Libor swap
rates. We show that jumps are essential for modeling term structure
dynamics, as AJTSMs significantly outperform ATSMs in capturing the
conditional moments, especially the skewness and kurtosis, of bond
yields at both short and long maturities. Moreover,
jump risk premiums lead to flexible time-varying market prices of risks without restricting time variations in conditional volatility. Consequently, two sub-classes of three-factor AJTSMs simultaneously capture violations of the “expectation hypothesis” and time variations in the conditional volatility of Libor swap rates.
BIOGRAPHY: Professor Li Haitao is the Spark Whirkpool Corporation Professor at the Stephen M. Ross School of Business at the University of Michigan. He received a PhD in Finance from Yale University in 1998 and was a faculty at the Johnson Graduate School of Management at Cornell University between 1997 and 2005. Professor Li’s current research interests are in theoretical and empirical asset pricing, term structure of interest rates, hedge funds, and financial econometrics. His recent works have developed econometric methods for analyzing continuous-time finance models driven by jump diffusions and Levy processes using underlying and derivative prices. He received the Sterling Prize Fellowship from Yale University and the Trefftz Award from the Western Finance Association.