The tail risk surface

Jungkyu Ahn; Yongkil Ahn

doi:10.1016/j.frl.2023.104497

The tail risk surface

Jungkyu Ahn, Yongkil Ahn

Dept. of Business Administration

Monash University

Research output: Contribution to journal › Article › peer-review

Abstract

This study utilizes swaptions data to quantify tail risk through the lens of the fixed income derivatives market. We adopt a non-parametric and model-independent approach to characterize tail risks in a three-dimensional space–time object. We further show that the implied tail risk surface has the predictive contents for stock returns, default risk, and economic uncertainty. There is a significant wedge between the proposed tail risk surface and the asset price dynamics in the financial market.

Original language	English
Article number	104497
Journal	Finance Research Letters
Volume	58
DOIs	https://doi.org/10.1016/j.frl.2023.104497
State	Published - Dec 2023

Keywords

Feature extraction techniques
Predictability
Surface
Swaptions
Tail risk

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10.1016/j.frl.2023.104497

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title = "The tail risk surface",

abstract = "This study utilizes swaptions data to quantify tail risk through the lens of the fixed income derivatives market. We adopt a non-parametric and model-independent approach to characterize tail risks in a three-dimensional space–time object. We further show that the implied tail risk surface has the predictive contents for stock returns, default risk, and economic uncertainty. There is a significant wedge between the proposed tail risk surface and the asset price dynamics in the financial market.",

keywords = "Feature extraction techniques, Predictability, Surface, Swaptions, Tail risk",

author = "Jungkyu Ahn and Yongkil Ahn",

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AU - Ahn, Yongkil

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AB - This study utilizes swaptions data to quantify tail risk through the lens of the fixed income derivatives market. We adopt a non-parametric and model-independent approach to characterize tail risks in a three-dimensional space–time object. We further show that the implied tail risk surface has the predictive contents for stock returns, default risk, and economic uncertainty. There is a significant wedge between the proposed tail risk surface and the asset price dynamics in the financial market.

KW - Feature extraction techniques

KW - Predictability

KW - Surface

KW - Swaptions

KW - Tail risk

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DO - 10.1016/j.frl.2023.104497

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SN - 1544-6123

VL - 58

JO - Finance Research Letters

JF - Finance Research Letters

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The tail risk surface

Abstract

Keywords

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