Topic: Treasury Richness

Speaker: Francis Longstaff, Distinguished Professor of Finance, UCLA Anderson School of Management

Time: 10:00am-11:30pm, October 19 (Beijing Time)

Location: 4-101

Abstract:

This paper presents a new approach for measuring the convenience premia in Treasury security prices, and documents their time-series and cross-sectional properties. Many Treasuries have repeatedly traded at substantial discounts to their intrinsic fair values for extended periods during the past 25 years. Since 2015, Treasuries have been priced at an aggregate discount of $100 to $300 billion below their fair values. We test the implications of a number of recent safe-asset theories and find that illiquidity, intermediary balance-sheet costs, and the opportunity cost of holding money are important drivers of Treasury convenience premia.

About the speaker:

Francis A. Longstaff is a certified public accountant (CPA) and a chartered financial analyst (CFA). From 1995 to 1998, Longstaff was head of fixed income derivative research at Salomon Brothers Inc. in New York. He has also worked in the research department of the Chicago Board of Trade and for Deloitte and Touche as a management consultant.

His current research interests include:

1. Fixed income markets and term structure theory;

2. Derivative markets and valuation theory;

3. Credit risk;

4. Computational finance;

5. Liquidity and its effects on prices and markets;

6. The role of arbitrage in financial markets.

Several of his recent term structure papers have focused on the expectations hypothesis. Recent papers in the area of derivatives have focused on the valuation of American options by simulation and on the valuation of interest rate derivatives in string models of the term structure. Other recent papers provide upper bounds on the size of discounts for lack of liquidity that can be sustained in financial markets and also examine the risk/return relationship for hedge funds investing in pure arbitrage opportunities when there are margin constraints. He has published nearly 70 articles in academic and practitioner journals.

Many of his valuation models have been used widely on Wall Street and throughout the global financial markets. He has extensive experience as a consultant for many Wall Street firms, mutual funds, hedge funds, commercial banks and other financial institutions, software developers and risk management firms, as well as in litigation support. He is a frequent speaker at practitioner seminars and conferences.