Publications

Unspanned Stochastic Volatility in the Linear-Rational Square-Root Model: Evidence from the Treasury market (single-authored)

• Journal of Banking & Finance, Volume 171, December 2023, Article 107354. Published version   Working paper 

• Abstract: This study examines the ability of the linear-rational square-root model to simultaneously capture cross-sectional and time-series dynamics of bond yields and their variances. The preferred model specification comprises five factors, two of which are not spanned by the yield curve, introducing unspanned stochastic volatility (USV). This specification provides a close in-sample fit to yields and yield variances, emphasizing the need for USV. Out-of-sample testing demonstrates low variance forecast errors. The specification provides evidence of USV in conditional yield variance and bond risk premia, linked to macroeconomic uncertainty.

Treasury Option Returns and Models with Unspanned Risks (with G. Bakshi, J. Crosby, and X. Gao)

• Journal of Financial Economics, Volume 150, Issue 3, December 2023, Article 103736.  Published version    Working paper 

• Abstract: We document the phenomenon that average excess returns of out-of-the-money puts and calls on bond futures are negative, both unconditionally and conditionally on economic states. To explain these findings, we develop economically motivated restrictions in the context of a theory in which the pricing kernel is a general diffusion process with spanned and unspanned components. Our reconciliation is a framework that introduces market incompleteness and priced unspanned volatility risks, allowing for time-varying downside and upside futures risk premiums. The estimated model shows consistency with data on bond yields, yield volatilities, bond futures return volatilities, option prices, and option risk premiums.

Quantifying investor narratives and their role during COVID-19 (with Daniel Borup, Benjamin D. Liengaard, and Erik C. M. Schütte)

• Journal of Applied Econometrics, Volume 38, Issue 4, June/July 2023, Pages 512-532. Published version    Working paper    Data

• Best Quantitative Paper Award, Behavioural Finance Working Group 2021 Conference (Queen Mary Uni. of London)

• Abstract: This paper elicits and quantifies narratives from open-ended surveys sent daily to US stockholders during the first wave of the COVID-19 pandemic. Using textual analysis, we extract 13 narratives and measure their prevalence over time. A validation analysis confirms the behavioral and economic relevance of the retrieved narratives. Moreover, we find that the narratives contain predictive information for future excess stock and bond returns, and this predictability remains when controlling for contemporaneous information stemming from news and social media. Finally, we find evidence that political identity is reflected in the narrative tone.

Working papers

Immunization in the Treasury market using consistent term structure dynamics (with Daniel Borup and Bent J. Christensen)

• Revise and resubmit at Journal of Banking & Finance

• Working paper

• Abstract: Traditional duration matching approaches to fixed-income immunization are cross-sectional in nature. We show that improved hedging of interest rate risk can be achieved by matching generalized durations that appropriately account for term structure dynamics, provided sufficient structure is in place. Using the standard three factors is insufficient. The desired structure that improves performance relies on factor loadings that are parsimoniously parametrized according to dynamically consistent shape of the yield curve. Dynamic consistency ensures that the potential future yield curves accounted for are those that can be generated by the factor dynamics governing interest rates and, hence, returns. Strongest empirical hedging performance is achieved using generalized durations that are dynamically consistent with a new term structure model with stochastic level, slope, and curvature factors. Gains relative to traditional duration matching are of the order one half or better in RMSE terms for immunization of long-only, spread, liability, and mixed Treasury portfolios. Performance deteriorates if matching basic durations, or generalized durations with loadings corresponding to unrestricted, dynamically inconsistent, or affine yield curve shape.

Be on Your Guard: Options Markets and Safety Related Small Maturity Phenomena (with G. Bakshi, J. Crosby, and X. Gao)  

• Working paper 

• Abstract: To analyze small maturity phenomena related to safety in markets, we develop a model to explain observable patterns: a positive correlation between the returns of out-of-the-money (OTM) Treasury bond futures calls and S&P 500 stock puts, lack of correlation between the returns of OTM bond puts and stock calls, and a decrease in the VVIX/VIX ratio during times of market stress. The estimated model is based on a theory of bivariate jump distributions for the bond’s upside (downside) and the stock’s downside (upside) supported by two stochastic jump intensities and is validated empirically by small maturity findings that encompass 15 variables.

A Theory of Small Maturity Effects and Data Realities of 7DTE Treasury Options across Tenors  (with G. Bakshi, J. Crosby, and X. Gao)

• Working paper 

• Abstract: This study introduces data on weekly expiring (7DTE) Treasury options and presents two observations. First, the 7DTE risk-neutral distributions of the 30-year bond futures are right-shifted compared to their 10-year counterparts. Second, the return skewness for both tenors changes direction, with the 30 (10)-year exhibiting positive (negative) skewness on average. We propose a model with two Poisson processes and stochastic intensity rates as an explanation. The model accounts for correlated price jump distributions, differing in expected jump sizes between the tenors, for both down and up movements. The estimated 7DTE model supports the theoretical implications of the two empirical observations.

Economic Drivers of Gold  (with G. Bakshi, J. Crosby, X. Gao, and Zhaowei Zhang)

• Working paper 

• Abstract: This paper develops a unified empirical and theoretical framework to reveal the economic drivers of gold prices, volatility, and options. Gold’s most robust driver is an asymmetric, inverse dependence on the U.S. dollar index, exceeding the influence of real Treasury yields and equities. To formalize this, we develop a novel jump-diffusion model with idiosyncratic and nonidiosyncratic volatility components, estimated by Kalman filtering. The model captures gold’s asymmetric dollar sensitivity, downside option risk premiums, and VIX gold patterns. Our results reveal that gold functions simultaneously as a U.S.-dollar-denominated reserve commodity and as a financialized commodity embedded in global markets.

The impact of curve-fitting procedure on estimation and testing of term structure models (with Bent J. Christensen)

• Abstract: An empirical analysis of interest rates is generally split into an initial yield fitting step and a subsequent model estimation step. We study the impact of the fitting procedure used on the inference in the estimation step, such as on the fit of a particular dynamic term structure model or tests for arbitrage opportunities. We cast the analysis into the Heath-Jarrow-Morton framework and provide an empirical application to US Treasury coupon bond data. We find that the yield curve used in the fitting step, and, in particular, the consistency between the shape of the yield curve and the dynamic term structure model used in the estimation step, has a significant impact on the conclusions drawn from the analysis.

Seminars and Conferences

• EUROFIDAI-ESSEC Paris December Finance Meeting, ESSEC Business School, Paris, FR (2025) 

• FMA Europe, Cyprus University of Technology, Limassol, CY (2025)

• FMA Europe, ESCP Business School, Turin, IT (2024)

• Copenhagen Business School, Department of Economics, Brown Bag Series, Copenhagen, DK (2025)

• SoFie Conference, Sungkyunkwan University, Seoul, KOR (2023)

• FMA Europe, Aalborg University Business School, Aalborg, DK (2023)

• Financial Econometrics Conference, Lancaster University Management School, UK (2023)

• Behavioral Finance Workshop Aarhus-Amsterdam-Kiel, Aarhus University, DK (2022)

• Econometrics-Finance seminar, Aarhus University, DK (2022)

• The 8th Annual Melbourne Asset Pricing Meeting, University of Melbourne, AU (2021)

• The 14th Edition of the Annual Meeting of The Risk, Banking and Finance Society, Cagliari, IT (2021)

• The Annual Congress of the European Economic Association and European Meeting of the Econometric Society, Copenhagen, DK (2021)

• The 37th International Conference of the French Finance Association, Nantes, FR (2021)

• Nordic Finance Network (NFN) Young Scholars Finance Webinar Series (2021)

• The 14th International Conference on Computational and Financial Econometrics, London, UK (2020)

• Econometrics-Finance seminar, Aarhus University, Aarhus, DK (2020)

• The 13th International Conference on Computational and Financial Econometrics, London, UK (2019)

• Economics seminar, Aarhus University, Aarhus, DK (2019) 

• International Association for Applied Econometrics Annual Conference, Nicosia, CY (2018)

• Econometrics-Finance seminar, Aarhus University, Denmark, Aarhus (2018)

• Econometrics seminar, University of Philadelphia, USA, Philadelphia (2018)