Assistant Professor of Finance
John and Anne Oros Professor (2023 - present)
Wisconsin School of Business
University of Wisconsin–Madison
5253 Grainger Hall
975 University Avenue
Madison, WI 53706-1324
E-mail: sang.seo@wisc.edu | Phone: (608) 262-9777
CV | SSRN | Google Scholar
EDUCATION
The Wharton School, University of Pennsylvania
Ph.D. & M.A. in Finance, 2010 - 2015
KAIST (Korea Advanced Institute of Science and Technology)
B.S. in Management Engineering & Mathematics, 2003 - 2007
PUBLISHED AND ACCEPTED PAPERS
Do Rare Events Explain CDX Tranche Spreads?, with Jessica A. Wachter
Journal of Finance 73 (5): 2343-2383, October 2018. Internet Appendix
Awarded Marshall Blume Prize in Financial Research, honorable mention.
Option Prices in a Model with Stochastic Disaster Risk, with Jessica A. Wachter
Management Science 65 (8): 3449-3469, August 2019.
Learning, Slowly Unfolding Disasters, and Asset Prices, with Mohammad Ghaderi and Mete Kilic
Journal of Financial Economics 143 (1): 527-549, January 2022. Internet Appendix
Previously circulated under the title "Slowly unfolding disasters"
Characterizing the Variance Risk Premium: The Role of the Leverage Effect, with Guanglian Hu and Kris Jacobs
Review of Asset Pricing Studies 12 (2): 500-542, June 2022.
Synthetic Options and Implied Volatility for the Corporate Bond Market, with Steven Chen and Hitesh Doshi
Journal of Financial and Quantitative Analysis 58 (3): 1295-1325, May 2023. Internet Appendix
Previously circulated under the titles "Corporate Bond VIX" and "Ex Ante Risk in the Corporate Bond Market: Evidence from Synthetic Options"
Why Do Rational Investors Like Variance at the Peak of a Crisis? A Learning-Based Explanation, with Mohammad Ghaderi and Mete Kilic
Journal of Monetary Economics, 142, March 2024. Internet Appendix
WORKING PAPERS
The Risk and Return of Equity and Credit Index Options, with Hitesh Doshi, Jan Ericsson, and Mathieu Fournier
R&R at the Journal of Financial Economics
Abstract: We develop a structural credit risk model, which allows us to price equity/credit indices and their options through the asset dynamics of index constituents. We estimate the model via MLE and find that equity and credit index option prices are well explained out-of-sample. Contrary to recent empirical findings, the two option markets are not inconsistently priced through the lens of our model. Returns on both options, while extreme, do not indicate any evidence of mispricing. Our analysis suggests that jointly addressing the pricing of various instruments requires a balance between three sources of systematic risk: asset, variance, and jump risks.
Is There a Macro-Announcement Premium?, with Mohammad Ghaderi
Abstract: The conditional return volatility barely drops at macro-announcements. This is at odds with the notion that high announcement returns are a manifestation of a large announcement premium. We show that models with an announcement premium cannot explain the joint patterns of return and volatility over announcement days. Surprisingly, traditional models, which do not feature such a premium, can. Our estimation results based on a statistical setup indicate that the average announcement return is mostly attributable to the monetary policy surprise and pure small-sample components, which do not average out in-sample; the announcement premium is estimated to be small, if any.
Options on Interbank Rates and Implied Disaster Risk, with Hitesh Doshi and Hyung Joo Kim
R&R at the Journal of Financial and Quantitative Analysis
Abstract: The identification of disaster risk has remained a significant challenge due to the rarity of macroeconomic disasters. We show that the interbank market can help characterize the time variation in disaster risk. We propose a risk-based model in which macroeconomic disasters are likely to coincide with interbank market failure. Using interbank rates and their options, we estimate our model via MLE and filter out the short-run and long-run components of disaster risk. Our estimation results are independent of the stock market and serve as an external validity test of rare disaster models, which are typically calibrated to match stock moments.
CDS-Implied Risk of Economic Catastrophes
Abstract: I develop a tail risk measure that can pinpoint a portion of systematic risk that is catastrophic. Based on the observation that episodes of economic disasters coincide with severe defaults, I define my tail risk measure as the probability that many large firms collectively default. The measure is estimated using the time series, cross section, and term structures of CDS spreads based on a model of joint defaults. Using this, I show that high catastrophic tail risk robustly predicts high future excess returns for various assets. This risk is priced, generating substantial dispersion in the cross section of stock returns.
WORK IN PROGRESS
Do Peso Problems Explain Option Pricing Puzzles?, with Mohammad Ghaderi and Mete Kilic