Topic: The Risk and Return of Equity and Credit Index Options

Speaker: Jan Ericsson, Associate Professor of Finance (with tenure), McGill University

Time: 10:00am-11:30am, December 13 (Beijing Time)

Location: 4-101

Abstract:

We develop a structural credit risk model, which allows us to price equity/credit indices and their options through the asset dynamics of index constituents. We estimate the model via MLE and find that equity and credit index option prices are well explained out-of-sample. Contrary to recent empirical findings, the two option markets are not inconsistently priced through the lens of our model. Returns on both options, while extreme, do not indicate any evidence of mispricing. Our analysis suggests that jointly addressing the pricing of various instruments requires a balance between three sources of systematic risk: asset, variance, and jump risks.

Speaker Biography:

Professor Ericsson joined the Desautels Faculty of Management in the autumn of 1999 with a PhD from the Stockholm School of Economics (1997). A former Marie Curie Fellow at the Catholic University of Louvain, Belgium, he is now an associate professor, head of the finance group, Director of the Masters in Finance as well as Honours Investment Management programs.

Ericsson’s current research focuses on risk premia in corporate bond and credit derivative markets, and has been published in the Journal of Finance, Review of Financial Studies, Journal of Financial Economics, Journal of Business, JFQA and others.

At McGill, Professor Ericsson has given derivatives, and fixed income courses at BCOM, MMF, MBA and PhD levels.

At the executive level, Ericsson has spearheaded single- and multi-name credit derivative courses, as well as general seminars on derivatives theory in Montreal, Stockholm, and New York. He has also acted as guest speaker at industry conferences in North America and the Caribbean. Furthermore, Professor Ericsson has carried out consulting projects for a Nordic real estate investment firm, the Swedish National Debt Office, acted as advisor / expert witness to a  number of law firms on topics related to derivatives and structured products.