Essays on credit risk, interest rate risk and macroeconomic risk.

摘要

This dissertation investigates credit risk, interest rate risk and macroeconomic risk in the context of asset pricing and asset allocation. The first chapter gives an introduction to the issues examined in this dissertation. The second chapter studies how the integration of credit risk and interest rate risk affects investor's asset allocation. Credit risk, in this dissertation, mainly refers to the risk that an obligor fails to repay its debt. It is an important source of risk to investors in financial markets. Yet this issue has received little attention in the theoretical asset allocation literature. Based on recent theoretical results on credit-sensitive bond pricing, I study the investors' behavior facing credit risk in a formal way. Investors in the model dynamically allocate their wealth across corporate bonds, Treasury bonds and equity in order to maximize utility. This chapter shows investors can gain sizable welfare improvement from investing in credit markets. The third chapter focuses on interest rate modeling from the perspective of hedging interest rate derivatives when implied volatilities across strike prices are non-flat (the so-called “volatility smiles”). Several recent extensions to the Libor Market Model, popular among market practitioners, have been advanced to cope with volatility smiles but their relative pricing and hedging performances are unknown. This chapter fills the gap by evaluating these models with a comprehensive European swaption dataset. The fourth chapter revisits the Capital Asset Pricing Model (CAPM) testing. Roll (1977) points out that the main difficulty in testing the CAPM is to find a suitable market proxy. This chapter attempts to answer the Roll's critique by using a hypothetical aggregate portfolio that uses GDP flow as its dividend. The empirical results also contribute to the evaluation of US production efficiency in the mean-variance sense. The findings of this dissertation are shown to have important implications for portfolio choice, risk management and asset pricing.