Recovery

45 Pages Posted: 23 Nov 2019

See all articles by Gurdip Bakshi

Gurdip Bakshi

Fox School of Business

Xiaohui Gao Bakshi

Fox School of Business, Temple University

Jinming Xue

University of Maryland - Department of Finance

Date Written: November 12, 2019

Abstract

We consider an approach to derive the conditional expectation of return quantities under the real-world probability measure, exploiting the form of the projected stochastic discount factor. Our treatment is formulaic in that the expectation can be synthesized from the prices of the risk-free bond, the asset, and options on the asset. The method is free of distributional assumptions, and we use it to study empirical questions related to (i) conditional probability of a disaster and return upside and (ii) spanning hypothesis in the Treasury market. We examine the empirical consistency of our approach and show that our treatment is relevant.

Keywords: recovery

Suggested Citation

Bakshi, Gurdip S. and Gao, Xiaohui and Xue, Jinming, Recovery (November 12, 2019). Fox School of Business Research Paper Forthcoming. Available at SSRN: https://ssrn.com/abstract=3485669 or http://dx.doi.org/10.2139/ssrn.3485669

Gurdip S. Bakshi

Fox School of Business ( email )

Department of Finance
Philadelphia, PA 19022
United States
215-204-6117 (Phone)
tuk40718@temple.edu (Fax)

HOME PAGE: http://https://sites.google.com/view/gurdipbakshi1

Xiaohui Gao (Contact Author)

Fox School of Business, Temple University ( email )

Philadelphia, PA 19122
United States

Jinming Xue

University of Maryland - Department of Finance ( email )

Robert H. Smith School of Business
Van Munching Hall
College Park, MD 20742
United States

HOME PAGE: http://https://sites.google.com/view/jinmingxue/home

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