Dear All,

You are cordially invited to attend the FRE Lecture Series on Thursday, October 17th in the Pfizer Auditorium  on the 1st Floor of the Dibner Library (5 MetroTech Center) at 6PM.

Dr. John Crosby will present a talk on the following topic:

Title:

Unspanned Risks, Negative Local Time Risk Premiums, and Empirical Consistency of Models of Interest-Rate Claims

Abstract:

We formalize the notion of local time risk premium in the context of a theory in which the pricing kernel is a general diffusion process with spanned and unspanned components. We derive results on the expected excess return of options on bond futures. These results are organized around our new empirical finding that the average returns of out-of-the-money puts and calls on Treasury bond futures are both negative. Our theoretical reconciliation warrants a negative local time risk premium, and our treatment considers models with market incompleteness and sources of volatility uncertainty. Our results provide a way to differentiate between the myriad of term-structure models.

Bio:

John gained a first class honours degree in Mathematics at Girton College, Cambridge University before going on to study Electrical Engineering at University College, Oxford University. He was in investment banking (Barclays, Lloyds, UBS) for some 20 years working as a quant, heading quant teams and trading foreign exchange options.
More recently, John has moved into academia. He is at the Smith School of Business, University of Maryland. He is best known for publishing a number of papers on the theme of international risk sharing, exchange rates, term-structure modelling and incomplete markets (for example, one paper recently published at the Review of Financial Studies).

We look forward to having you join us for the talk and refreshments. Please mark your calendars.