NBER Working Papers by Luca Benzoni
Contact and additional information for this author
•
All NBER papers and publications
•
NBER Working Papers only
Working Papers
March 2007  Do Bonds Span Volatility Risk in the U.S. Treasury Market? A Specification test for Affine Term Structure Models
with Torben G. Andersen: w12962
We investigate whether bonds span the volatility risk in the U.S. Treasury market, as predicted by most 'affine' term structure models. To this end, we construct powerful and modelfree empirical measures of the quadratic yield variation for a crosssection of fixedmaturity zerocoupon bonds ("realized yield volatility") through the use of highfrequency data. We find that the yield curve fails to span yield volatility, as the systematic volatility factors are largely unrelated to the crosssection of yields. We conclude that a broad class of affine diffusive, Gaussianquadratic and affine jumpdiffusive models is incapable of accommodating the observed yield volatility dynamics. An important implication is that the bond markets per se are incomplete and yield volatility risk cannot be he... Published: Torben G. Andersen & Luca Benzoni, 2010.
"Do Bonds Span Volatility Risk in the U.S. Treasury Market? A Specification Test for Affine Term Structure Models,"
Journal of Finance,
American Finance Association, vol. 65(2), pages 603653, 04.
citation courtesy of

December 2005  Can Standard Preferences Explain the Prices of out of the Money S&P 500 Put Options
with Pierre CollinDufresne, Robert S. Goldstein: w11861
Prior to the stock market crash of 1987, BlackScholes implied volatilities of S&P 500 index options were relatively constant across moneyness. Since the crash, however, deep outofthemoney S&P 500 put options have become %u2018expensive%u2019 relative to the BlackScholes benchmark. Many researchers (e.g., Liu, Pan and Wang (2005)) have argued that such prices cannot be justified in a general equilibrium setting if the representative agent has %u2018standard preferences%u2019 and the endowment is an i.i.d. process. Below, however, we use the insight of Bansal and Yaron (2004) to demonstrate that the %u2018volatility smirk%u2019 can be rationalized if the agent is endowed with EpsteinZin preferences and if the aggregate dividend and consumption processes are driven by a persistent stoch... 
April 2005  Portfolio Choice over the LifeCycle in the Presence of 'Trickle Down' Labor Income
with Pierre CollinDufresne, Robert S. Goldstein: w11247
Empirical evidence shows that changes in aggregate labor income and stock market returns exhibit only weak correlation at short horizons. As we document below, however, this correlation increases substantially at longer horizons, which provides at least suggestive evidence that stock returns and labor income are cointegrated. In this paper, we investigate the implications of such a cointegrated relation for lifecycle optimal portfolio and consumption decisions of an agent whose nontradable labor income faces permanent and temporary idiosyncratic shocks. We find that, under economically plausible calibrations, the optimal portfolio choice for the young investor is to take a substantial {\em short} position in the risky portfolio, in spite of the large risk premium associated with it. Intu... Published: Benzoni, Luca, Pierre CollinDufresne and Robert S. Goldstein. "Portfolio Choice over the LifeCycle when the Stock and Labor Markets Are Cointegrated." The Journal of Finance 62,5 (2007): 21232167.

October 2001  An Empirical Investigation of ContinuousTime Equity Return Models
with Torben G. Andersen, Jesper Lund: w8510
This paper extends the class of stochastic volatility diffusions for asset returns to encompass Poisson jumps of timevarying intensity. We find that any reasonably descriptive continuoustime model for equityindex returns must allow for discrete jumps as well as stochastic volatility with a pronounced negative relationship between return and volatility innovations. We also find that the dominant empirical characteristics of the return process appear to be priced by the option market. Our analysis indicates a general correspondence between the evidence extracted from daily equityindex returns and the stylized features of the corresponding options market prices. Published: Andersen, Torben G., Luca Benzoni and Jesper Lund. "An Empirical Investigation Of ContinuousTime Equity Return Models," Journal of Finance, 2002, v57(3,Jun), 12391284. citation courtesy of

Contact and additional information for this author
•
All NBER papers and publications
•
NBER Working Papers only

