ISBN-10:
0691122970
ISBN-13:
9780691122977
Pub. Date:
03/26/2006
Publisher:
Princeton University Press
Empirical Dynamic Asset Pricing: Model Specification and Econometric Assessment / Edition 1

Empirical Dynamic Asset Pricing: Model Specification and Econometric Assessment / Edition 1

by Kenneth J. Singleton

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Product Details

ISBN-13: 9780691122977
Publisher: Princeton University Press
Publication date: 03/26/2006
Edition description: New Edition
Pages: 496
Product dimensions: 6.00(w) x 9.25(h) x (d)

About the Author

Kenneth J. Singleton is Adams Distinguished Professor of Management and Senior Associate Dean for Academic Affairs at the Graduate School of Business, Stanford University. A Fellow of the Econometric Society, he is the recipient of the organization's Frisch Prize. He is also the recipient of the Smith-Breeden Distinguished Paper Award from the Journal of Finance. Singleton is a director of the American Finance Association and was previously an editor of the Review of Financial Studies. He is coauthor, with Darrell Duffie, of Credit Risk: Pricing, Management, and Measurement (Princeton).

Table of Contents

Preface xi
Acknowledgments xiii




Chapter 1: Introduction 1





1.1. Model Implied Restrictions 3

1.2. Econometric Estimation Strategies 10





Part I: Econometric Methods for Analyzing DAPMs 15





Chapter 2: Model Specification and Estimation Strategies 17





2.1. Full Information about Distributions 17

2.2. No Information about the Distribution 21

2.3. Limited Information: GMM Estimators 25

2.4. Summary of Estimators 34





Chapter 3: Large-Sample Properties of Extremum Estimators 35





3.1. Basic Probability Model 35

3.2. Consistency: General Considerations 39

3.3. Consistency of Extremum Estimators 44

3.4. Asymptotic Normality of Extremum Estimators 48

3.5. Distributions of Specific Estimators 53

3.6. Relative Efficiency of Estimators 60





Chapter 4: Goodness-of-Fit and Hypothesis Testing 71





4.1. GMM Tests of Goodness-of-Fit 71

4.2. Testing Restrictions on θ 0 77

4.3. Comparing LR, Wald, and LM Tests 84

4.4. Inference for Sequential Estimators 86

4.5. Inference with Unequal-Length Samples 88

4.6. Underidentified Parameters under H 0 94





Chapter 5: Affine Processes 98





5.1. Affine Processes: Overview 100

5.2. Continuous-Time Affine Processes 101

5.3. Discrete-Time Affine Processes 108

5.4. Transforms for Affine Processes 114

5.5. GMM Estimation of Affine Processes 117

5.6. ML Estimation of Affine Processes 118

5.7. Characteristic Function-Based Estimators 124





Chapter 6: Simulation-Based Estimators of DAPMs 130





6.1. Introduction 130

6.2. SME: The Estimation Problem 132

6.3. Consistency of the SME 135

6.4. Asymptotic Normality of the SME 142

6.5. Extensions of the SME 144

6.6. Moment Selection with SME 146

6.7. Applications of SME to Diffusion Models 152

6.8. Markov Chain Monte Carlo Estimation 153





Chapter 7: Stochastic Volatility, Jumps, and Asset Returns 158





7.1. Preliminary Observations about Shape 159

7.2. Discrete-Time Models 164

7.3. Estimation of Discrete-Time Models 171

7.4. Continuous-Time Models 174

7.5. Estimation of Continuous-Time Models 179

7.6. Volatility Scaling 185

7.7. Term Structures of Conditional Skewness and Kurtosis 187





Part II: Pricing Kernels, Preferences, and DAPMs 193





Chapter 8: Pricing Kernels and DAPMs 195





8.1. Pricing Kernels 195

8.2. Marginal Rates of Substitution as q *198

8.3. No-Arbitrage and Risk-Neutral Pricing 202





Chapter 9: Linear Asset Pricing Models 211





9.1. Economic Motivations for Examining Asset Return Predictability 211

9.2. Market Microstructure Effects 214

9.3. A Digression on Unit Roots in Time Series 219

9.4. Tests for Serial Correlation in Returns 224

9.5. Evidence on Stock-Return Predictability 231

9.6. Time-Varying Expected Returns on Bonds 237





Chapter 10: Consumption-Based DAPMs 246





10.1. Empirical Challenges Facing DAPMs 247

10.2. Assessing Goodness-of-Fit 251

10.3. Time-Separable Single-Good Models 254

10.4. Models with Durable Goods 260

10.5. Habit Formation 265

10.6. Non-State-Separable Preferences 274

10.7. Other Preference-Based Models 276

10.8. Bounds on the Volatility of m nt 277





Chapter 11: Pricing Kernels and Factor Models 282





11.1. A Single-Beta Representation of Returns 283

11.2. Beta Representations of Excess Returns 285

11.3. Conditioning Down and Beta Relations 287

11.4. From Pricing Kernels to Factor Models 290

11.5. Methods for Testing Beta Models 297

11.6. Empirical Analyses of Factor Models 302





Part III: No-Arbitrage DAPMs 309





Chapter 12: Models of the Term Structure of Bond Yields 311





12.1. Key Ingredients of a DTSM 312

12.2. Affine Term Structure Models 316

12.3. Continuous-Time Affine DTSMs 317

12.4. Discrete-Time Affine DSTMs 327

12.5. Quadratic-Gaussian Models 329

12.6. NonAffine Stochastic Volatility Models 331

12.7. Bond Pricing with Jumps 332

12.8. DTSMs with Regime Shifts 334





Chapter 13: Empirical Analyses of Dynamic Term Structure Models 338





13.1. Estimation of DTSMs 338

13.2. Empirical Challenges for DTSMs 344

13.3. DTSMs of Swap and Treasury Yields 348

13.4. Factor Interpretations in Affine DTSMs 356

13.5. Macroeconomic Factors and DTSMs 359





Chapter 14: Term Structures of Corporate Bond Spreads 364





14.1. DTSMs of Defaultable Bonds 364

14.2. Parametric Reduced-Form Models 369

14.3. Parametric Structural Models 371

14.4. Empirical Studies of Corporate Bonds 373

14.5. Modeling Interest Rate Swap Spreads 383

14.6. Pricing Credit Default Swaps 384

14.7. Is Default Risk Priced? 387





Chapter 15: Equity Option Pricing Models 391





15.1. No-Arbitrage Option Pricing Models 392

15.2. Option Pricing 396

15.3. Estimation of Option Pricing Models 397

15.4. Econometric Analysis of Option Prices 401

15.5. Options and Revealed Preferences 404

15.6. Options on Individual Common Stocks 410





Chapter 16: Pricing Fixed-Income Derivatives 412





16.1. Pricing with Affine DTSMs 413

16.2. Pricing Using Forward-Rate Models 417

16.3. Risk Factors and Derivatives Pricing 425

16.4. Affine Models of Derivatives Prices 428

16.5. Forward-Rate-Based Pricing Models 429

16.6. On Model-Basing Hedging 431

16.7. Pricing Eurodollar Futures Options 433





References 435

Index 465


What People are Saying About This

Mikhail Chernov

This book fills a huge gap. It goes beyond the detailed description of methodology to provide a critical overview of findings in the literature. As a result, it not only offers the state of the art, but identifies the paths for future research--an invaluable textbook feature. With more than twenty-five years' worth of incredibly influential research on the topic, Kenneth Singleton was the perfect person to write it.
Mikhail Chernov, Columbia University

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