Essays on Risk Premium
Date Issued
2008
Date
2008
Author(s)
Chang, Hsiu-Yun
Abstract
This thesis focuses on the topic of risk premium and mainly explores (1) “Common Risk Premiums in Currency Option Market” and (2) “Asymmetric Information Premiums in Housing Prices”.he first part of this thesis is to investigate whether and how volatility risks are priced in currency option market. Using a integrated database containing information on daily transaction foreign currency options, domestic and foreign interest rates, and foreign exchange rates, this study finds the following results: (1) Two common factors exist in the underlying assets of the PHLX currency options on the period of May 1, 1990 to December 19, 1997. The first factor should better be defined as ERM factor, and the other factor is non-ERM factor. (2) The Delta-Hedged Gains are significantly negative in currency options, by extending the Delta-Hedged Gains model of Bakshi and Kapadia (2003a, b), dealing with equity options, to currency options. (3) Non-ERM common risk premiums are embedded in PHLX currency options.he second part combines an exogenous measure of information developed by Garmaise and Moskowitzs (2004) with various functional forms of hedonic models to measure the implicit price of asymmetric information in the housing market. Using real estate market transaction data from the Department of Land Administration at the Ministry of the Interior in Taiwan, the evidence presented in this investigation supports the existence of an asymmetric information premium in housing prices, and going a step further, this premium is greater when prices are high.
Subjects
Currency options
Common risk premiums
Delta-Hedged Gains
ERM risk
Asymmetric information
Asymmetric information premium
Housing Price
Hedonic pricing method
Type
thesis
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