Research seminars

Real-Time Recovery of Tail Risks

Finance

Speaker: Brian Weller
Kellogg

9 April 2015


I develop a new methodology for estimating tail risks in real time using the cross-section of bid-ask spreads. Competitive market makers embed tail risk information into the spread because (1) stale quotes can only be picked o↵ for large price movements and (2) the magnitude of picking o↵ costs is linear in the size of jumps. Using this insight, simple cross-sectional regressions relating trading volume to spreads and factor exposures can recover instantaneous tail risks. This approach allows for estimation of risks for priced or non-priced return factors at arbitrarily high frequency without requiring directly traded factors. The recovered time series of implied market risks aligns closely with both realized market jumps and the VIX. In addition, the methodology correctly disentangles financial and aggregate market risks during the 2007-2008 Financial Crisis; anticipates jump risks associated with FOMC announcements; and quantifies a sharp, temporary increase in market tail risk before and throughout the 2010 Flash Crash.

Finance

Speaker: Adriano Rampini

23 May 2019 - T105 - From 2:00 pm to 3:15 pm


Finance

Speaker: Luke Taylor

16 May 2019 - T105 - From 2:00 pm to 3:15 pm


Finance

Speaker: Jessica Jeffers

18 April 2019 - T104 - From 2:00 pm to 3:15 pm


Finance

Speaker: Emil Verner

4 April 2019 - T104 - From 2:00 pm to 3:15 pm


Finance

Speaker: Ramona Dagostino

14 March 2019 - T104 - From 2:00 pm to 3:15 pm



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