Bruno Feunou - Latest

• Time-Varying Crash Risk: The Role of Stock Market Liquidity

  Staff Working Paper 2016-35 Peter Christoffersen, Bruno Feunou, Yoontae Jeon, Chayawat Ornthanalai

  We estimate a continuous-time model with stochastic volatility and dynamic crash probability for the S&P 500 index and find that market illiquidity dominates other factors in explaining the stock market crash risk. While the crash probability is time-varying, its dynamic depends only weakly on return variance once we include market illiquidity as an economic variable in the model.

  Content Type(s): Staff research, Staff working papers Topic(s): Asset pricing, Econometric and statistical methods, Financial stability JEL Code(s): G, G0, G01, G1, G12

• Tractable Term Structure Models

  Staff Working Paper 2015-46 Bruno Feunou, Jean-Sébastien Fontaine, Anh Le, Christian Lundblad

  We introduce a new framework that facilitates term structure modeling with both positive interest rates and flexible time-series dynamics but that is also tractable, meaning amenable to quick and robust estimation.

  Content Type(s): Staff research, Staff working papers Topic(s): Asset pricing, Interest rates, International financial markets, International topics, Monetary policy and uncertainty, Monetary policy transmission JEL Code(s): G, G1, G12

• Foreign Flows and Their Effects on Government of Canada Yields

  Staff Analytical Note 2015-1 Bruno Feunou, Jean-Sébastien Fontaine, James Kyeong, Jesus Sierra

  Foreign investment flows into Government of Canada (GoC) bonds have surged since the financial crisis. Our empirical analysis suggests that foreign flows of $150 billion lowered the 10-year GoC bond yield by 100 basis points between 2009 and 2012.

  Content Type(s): Staff research, Staff analytical notes Topic(s): International financial markets, International topics, Monetary policy transmission JEL Code(s): F, F3, F32

• Option Valuation with Observable Volatility and Jump Dynamics

  Staff Working Paper 2015-39 Peter Christoffersen, Bruno Feunou, Yoontae Jeon

  Under very general conditions, the total quadratic variation of a jump-diffusion process can be decomposed into diffusive volatility and squared jump variation. We use this result to develop a new option valuation model in which the underlying asset price exhibits volatility and jump intensity dynamics.

  Content Type(s): Staff research, Staff working papers Topic(s): Asset pricing JEL Code(s): G, G1, G12

• Downside Variance Risk Premium

  Staff Working Paper 2015-36 Bruno Feunou, Mohammad R. Jahan-Parvar, Cédric Okou

  We decompose the variance risk premium into upside and downside variance risk premia. These components reflect market compensation for changes in good and bad uncertainties. Their difference is a measure of the skewness risk premium (SRP), which captures asymmetric views on favorable versus undesirable risks.

  Content Type(s): Staff research, Staff working papers Topic(s): Asset pricing JEL Code(s): G, G1, G12

• Fourier Inversion Formulas for Multiple-Asset Option Pricing

  Staff Working Paper 2015-11 Bruno Feunou, Ernest Tafolong

  Plain vanilla options have a single underlying asset and a single condition on the payoff at the expiration date. For this class of options, a well-known result of Duffie, Pan and Singleton (2000) shows how to invert the characteristic function to obtain a closed-form formula for their prices.

  Content Type(s): Staff research, Staff working papers Topic(s): Asset pricing JEL Code(s): G, G1, G12
• May 13, 2014

  Measuring Uncertainty in Monetary Policy Using Realized and Implied Volatility

  Bank of Canada Review - Spring 2014 Bo Young Chang, Bruno Feunou

  Uncertainty surrounding the Bank of Canada’s future policy rates is measured using implied volatility computed from interest rate options and realized volatility computed from intraday prices of interest rate futures. Both volatility measures show that uncertainty decreased following major policy actions taken by the Bank in response to the 2007–09 financial crisis. Findings also indicate that, on average, uncertainty decreases following the Bank’s policy rate announcements.

  Content Type(s): Publications, Bank of Canada Review articles Topic(s): Monetary policy and uncertainty JEL Code(s): E, E5, E52, E58

• Bond Risk Premia and Gaussian Term Structure Models

  Staff Working Paper 2014-13 Bruno Feunou, Jean-Sébastien Fontaine

  Cochrane and Piazzesi (2005) show that (i) lagged forward rates improve the predictability of annual bond returns, adding to current forward rates, and that (ii) a Markovian model for monthly forward rates cannot generate the pattern of predictability in annual returns.

  Content Type(s): Staff research, Staff working papers Topic(s): Asset pricing, Interest rates JEL Code(s): E, E4, E43, E47, G, G1, G12

• Measuring Uncertainty in Monetary Policy Using Implied Volatility and Realized Volatility

  Staff Working Paper 2013-37 Bo Young Chang, Bruno Feunou

  We measure uncertainty surrounding the central bank’s future policy rates using implied volatility computed from interest rate option prices and realized volatility computed from intraday prices of interest rate futures.

  Content Type(s): Staff research, Staff working papers Topic(s): Monetary and financial indicators, Monetary policy and uncertainty JEL Code(s): E, E4

• Which Parametric Model for Conditional Skewness?

  Staff Working Paper 2013-32 Bruno Feunou, Mohammad R. Jahan-Parvar, Roméo Tedongap

  This paper addresses an existing gap in the developing literature on conditional skewness. We develop a simple procedure to evaluate parametric conditional skewness models. This procedure is based on regressing the realized skewness measures on model-implied conditional skewness values.

  Content Type(s): Staff research, Staff working papers Topic(s): Econometric and statistical methods JEL Code(s): C, C2, C22, C5, C51, G, G1, G12, G15