The Journal of Finance

Linear‐Rational Term Structure Models

Published: 12/16/2016   |   DOI: 10.1111/jofi.12488

DAMIR FILIPOVIĆ, MARTIN LARSSON, ANDERS B. TROLLE

We introduce the class of linear‐rational term structure models in which the state price density is modeled such that bond prices become linear‐rational functions of the factors. This class is highly tractable with several distinct advantages: (i) ensures nonnegative interest rates, (ii) easily accommodates unspanned factors affecting volatility and risk premiums, and (iii) admits semi‐analytical solutions to swaptions. A parsimonious model specification within the linear‐rational class has a very good fit to both interest rate swaps and swaptions since 1997 and captures many features of term structure, volatility, and risk premium dynamics—including when interest rates are close to the zero lower bound.

Market Structure and Transaction Costs of Index CDSs

Published: 06/01/2020   |   DOI: 10.1111/jofi.12953

PIERRE COLLIN‐DUFRESNE, BENJAMIN JUNGE, ANDERS B. TROLLE

Despite regulatory efforts to promote all‐to‐all trading, the post–Dodd‐Frank index credit default swap market remains two‐tiered. Transaction costs are higher for dealer‐to‐client than interdealer trades, but the difference is explained by the higher, largely permanent, price impact of client trades. Most interdealer trades are liquidity motivated and executed via low‐cost, low‐immediacy trading protocols. Dealer‐to‐client trades are nonanonymous; they almost always improve upon contemporaneous executable interdealer quotes, and dealers appear to price discriminate based on the perceived price impact of trades. Our results suggest that the market structure is a consequence of the characteristics of client trades: relatively infrequent, large, and differentially informed.

How Integrated are Credit and Equity Markets? Evidence from Index Options

Published: 12/12/2023   |   DOI: 10.1111/jofi.13300

PIERRE COLLIN‐DUFRESNE, BENJAMIN JUNGE, ANDERS B. TROLLE

We study the extent to which credit index (CDX) options are priced consistent with S&P 500 (SPX) equity index options. We derive analytical expressions for CDX and SPX options within a structural credit‐risk model with stochastic volatility and jumps using new results for pricing compound options via multivariate affine transform analysis. The model captures many aspects of the joint dynamics of CDX and SPX options. However, it cannot reconcile the relative levels of option prices, suggesting that credit and equity markets are not fully integrated. A strategy of selling CDX volatility yields significantly higher excess returns than selling SPX volatility.

Nonstandard Errors

Published: 04/17/2024   |   DOI: 10.1111/jofi.13337

ALBERT J. MENKVELD, ANNA DREBER, FELIX HOLZMEISTER, JUERGEN HUBER, MAGNUS JOHANNESSON, MICHAEL KIRCHLER, SEBASTIAN NEUSÜß, MICHAEL RAZEN, UTZ WEITZEL, DAVID ABAD‐DÍAZ, MENACHEM (MENI) ABUDY, TOBIAS ADRIAN, YACINE AIT‐SAHALIA, OLIVIER AKMANSOY, JAMIE T. ALCOCK, VITALI ALEXEEV, ARASH ALOOSH, LIVIA AMATO, DIEGO AMAYA, JAMES J. ANGEL, ALEJANDRO T. AVETIKIAN, AMADEUS BACH, EDWIN BAIDOO, GAETAN BAKALLI, LI BAO, ANDREA BARBON, OKSANA BASHCHENKO, PARAMPREET C. BINDRA, GEIR H. BJØNNES, JEFFREY R. BLACK, BERNARD S. BLACK, DIMITAR BOGOEV, SANTIAGO BOHORQUEZ CORREA, OLEG BONDARENKO, CHARLES S. BOS, CIRIL BOSCH‐ROSA, ELIE BOURI, CHRISTIAN BROWNLEES, ANNA CALAMIA, VIET NGA CAO, GUNTHER CAPELLE‐BLANCARD, LAURA M. CAPERA ROMERO, MASSIMILIANO CAPORIN, ALLEN CARRION, TOLGA CASKURLU, BIDISHA CHAKRABARTY, JIAN CHEN, MIKHAIL CHERNOV, WILLIAM CHEUNG, LUDWIG B. CHINCARINI, TARUN CHORDIA, SHEUNG‐CHI CHOW, BENJAMIN CLAPHAM, JEAN‐EDOUARD COLLIARD, CAROLE COMERTON‐FORDE, EDWARD CURRAN, THONG DAO, WALE DARE, RYAN J. DAVIES, RICCARDO DE BLASIS, GIANLUCA F. DE NARD, FANY DECLERCK, OLEG DEEV, HANS DEGRYSE, SOLOMON Y. DEKU, CHRISTOPHE DESAGRE, MATHIJS A. VAN DIJK, CHUKWUMA DIM, THOMAS DIMPFL, YUN JIANG DONG, PHILIP A. DRUMMOND, TOM DUDDA, TEODOR DUEVSKI, ARIADNA DUMITRESCU, TEODOR DYAKOV, ANNE HAUBO DYHRBERG, MICHAŁ DZIELIŃSKI, ASLI EKSI, IZIDIN EL KALAK, SASKIA TER ELLEN, NICOLAS EUGSTER, MARTIN D. D. EVANS, MICHAEL FARRELL, ESTER FELEZ‐VINAS, GERARDO FERRARA, EL MEHDI FERROUHI, ANDREA FLORI, JONATHAN T. FLUHARTY‐JAIDEE, SEAN D. V. FOLEY, KINGSLEY Y. L. FONG, THIERRY FOUCAULT, TATIANA FRANUS, FRANCESCO FRANZONI, BART FRIJNS, MICHAEL FRÖMMEL, SERVANNA M. FU, SASCHA C. FÜLLBRUNN, BAOQING GAN, GE GAO, THOMAS P. GEHRIG, ROLAND GEMAYEL, DIRK GERRITSEN, JAVIER GIL‐BAZO, DUDLEY GILDER, LAWRENCE R. GLOSTEN, THOMAS GOMEZ, ARSENY GORBENKO, JOACHIM GRAMMIG, VINCENT GRÉGOIRE, UFUK GÜÇBILMEZ, BJÖRN HAGSTRÖMER, JULIEN HAMBUCKERS, ERIK HAPNES, JEFFREY H. HARRIS, LAWRENCE HARRIS, SIMON HARTMANN, JEAN‐BAPTISTE HASSE, NIKOLAUS HAUTSCH, XUE‐ZHONG (TONY) HE, DAVIDSON HEATH, SIMON HEDIGER, TERRENCE HENDERSHOTT, ANN MARIE HIBBERT, ERIK HJALMARSSON, SETH A. HOELSCHER, PETER HOFFMANN, CRAIG W. HOLDEN, ALEX R. HORENSTEIN, WENQIAN HUANG, DA HUANG, CHRISTOPHE HURLIN, KONRAD ILCZUK, ALEXEY IVASHCHENKO, SUBRAMANIAN R. IYER, HOSSEIN JAHANSHAHLOO, NAJI JALKH, CHARLES M. JONES, SIMON JURKATIS, PETRI JYLHÄ, ANDREAS T. KAECK, GABRIEL KAISER, ARZÉ KARAM, EGLE KARMAZIENE, BERNHARD KASSNER, MARKKU KAUSTIA, EKATERINA KAZAK, FEARGHAL KEARNEY, VINCENT VAN KERVEL, SAAD A. KHAN, MARTA K. KHOMYN, TONY KLEIN, OLGA KLEIN, ALEXANDER KLOS, MICHAEL KOETTER, ALEKSEY KOLOKOLOV, ROBERT A. KORAJCZYK, ROMAN KOZHAN, JAN P. KRAHNEN, PAUL KUHLE, AMY KWAN, QUENTIN LAJAUNIE, F. Y. ERIC C. LAM, MARIE LAMBERT, HUGUES LANGLOIS, JENS LAUSEN, TOBIAS LAUTER, MARKUS LEIPPOLD, VLADIMIR LEVIN, YIJIE LI, HUI LI, CHEE YOONG LIEW, THOMAS LINDNER, OLIVER LINTON, JIACHENG LIU, ANQI LIU, GUILLERMO LLORENTE, MATTHIJS LOF, ARIEL LOHR, FRANCIS LONGSTAFF, ALEJANDRO LOPEZ‐LIRA, SHAWN MANKAD, NICOLA MANO, ALEXIS MARCHAL, CHARLES MARTINEAU, FRANCESCO MAZZOLA, DEBRAH MELOSO, MICHAEL G. MI, ROXANA MIHET, VIJAY MOHAN, SOPHIE MOINAS, DAVID MOORE, LIANGYI MU, DMITRIY MURAVYEV, DERMOT MURPHY, GABOR NESZVEDA, CHRISTIAN NEUMEIER, ULF NIELSSON, MAHENDRARAJAH NIMALENDRAN, SVEN NOLTE, LARS L. NORDEN, PETER O'NEILL, KHALED OBAID, BERNT A. ØDEGAARD, PER ÖSTBERG, EMILIANO PAGNOTTA, MARCUS PAINTER, STEFAN PALAN, IMON J. PALIT, ANDREAS PARK, ROBERTO PASCUAL, PAOLO PASQUARIELLO, LUBOS PASTOR, VINAY PATEL, ANDREW J. PATTON, NEIL D. PEARSON, LORIANA PELIZZON, MICHELE PELLI, MATTHIAS PELSTER, CHRISTOPHE PÉRIGNON, CAMERON PFIFFER, RICHARD PHILIP, TOMÁŠ PLÍHAL, PUNEET PRAKASH, OLIVER‐ALEXANDER PRESS, TINA PRODROMOU, MARCEL PROKOPCZUK, TALIS PUTNINS, YA QIAN, GAURAV RAIZADA, DAVID RAKOWSKI, ANGELO RANALDO, LUCA REGIS, STEFAN REITZ, THOMAS RENAULT, REX W. RENJIE, ROBERTO RENO, STEVEN J. RIDDIOUGH, KALLE RINNE, PAUL RINTAMÄKI, RYAN RIORDAN, THOMAS RITTMANNSBERGER, IÑAKI RODRÍGUEZ LONGARELA, DOMINIK ROESCH, LAVINIA ROGNONE, BRIAN ROSEMAN, IOANID ROŞU, SAURABH ROY, NICOLAS RUDOLF, STEPHEN R. RUSH, KHALADDIN RZAYEV, ALEKSANDRA A. RZEŹNIK, ANTHONY SANFORD, HARIKUMAR SANKARAN, ASANI SARKAR, LUCIO SARNO, OLIVIER SCAILLET, STEFAN SCHARNOWSKI, KLAUS R. SCHENK‐HOPPÉ, ANDREA SCHERTLER, MICHAEL SCHNEIDER, FLORIAN SCHROEDER, NORMAN SCHÜRHOFF, PHILIPP SCHUSTER, MARCO A. SCHWARZ, MARK S. SEASHOLES, NORMAN J. SEEGER, OR SHACHAR, ANDRIY SHKILKO, JESSICA SHUI, MARIO SIKIC, GIORGIA SIMION, LEE A. SMALES, PAUL SÖDERLIND, ELVIRA SOJLI, KONSTANTIN SOKOLOV, JANTJE SÖNKSEN, LAIMA SPOKEVICIUTE, DENITSA STEFANOVA, MARTI G. SUBRAHMANYAM, BARNABAS SZASZI, OLEKSANDR TALAVERA, YUEHUA TANG, NICK TAYLOR, WING WAH THAM, ERIK THEISSEN, JULIAN THIMME, IAN TONKS, HAI TRAN, LUCA TRAPIN, ANDERS B. TROLLE, M. ANDREEA VADUVA, GIORGIO VALENTE, ROBERT A. VAN NESS, AURELIO VASQUEZ, THANOS VEROUSIS, PATRICK VERWIJMEREN, ANDERS VILHELMSSON, GRIGORY VILKOV, VLADIMIR VLADIMIROV, SEBASTIAN VOGEL, STEFAN VOIGT, WOLF WAGNER, THOMAS WALTHER, PATRICK WEISS, MICHEL VAN DER WEL, INGRID M. WERNER, P. JOAKIM WESTERHOLM, CHRISTIAN WESTHEIDE, HANS C. WIKA, EVERT WIPPLINGER, MICHAEL WOLF, CHRISTIAN C. P. WOLFF, LEONARD WOLK, WING‐KEUNG WONG, JAN WRAMPELMEYER, ZHEN‐XING WU, SHUO XIA, DACHENG XIU, KE XU, CAIHONG XU, PRADEEP K. YADAV, JOSÉ YAGÜE, CHENG YAN, ANTTI YANG, WOONGSUN YOO, WENJIA YU, YIHE YU, SHIHAO YU, BART Z. YUESHEN, DARYA YUFEROVA, MARCIN ZAMOJSKI, ABALFAZL ZAREEI, STEFAN M. ZEISBERGER, LU ZHANG, S. SARAH ZHANG, XIAOYU ZHANG, LU ZHAO, ZHUO ZHONG, Z. IVY ZHOU, CHEN ZHOU, XINGYU S. ZHU, MARIUS ZOICAN, REMCO ZWINKELS

In statistics, samples are drawn from a population in a data‐generating process (DGP). Standard errors measure the uncertainty in estimates of population parameters. In science, evidence is generated to test hypotheses in an evidence‐generating process (EGP). We claim that EGP variation across researchers adds uncertainty—nonstandard errors (NSEs). We study NSEs by letting 164 teams test the same hypotheses on the same data. NSEs turn out to be sizable, but smaller for more reproducible or higher rated research. Adding peer‐review stages reduces NSEs. We further find that this type of uncertainty is underestimated by participants.