J.P. Morgan & Co.

About: J.P. Morgan & Co. is a based out in . It is known for research contribution in the topics: Portfolio & Implied volatility. The organization has 328 authors who have published 436 publications receiving 14291 citations.

Why Do Security Prices Change? A Transaction-Level Analysis of Nyse Stocks

Abstract: This paper develops a structural model of intraday price formation that embodies both information shocks and microstructure effects in an internally consistent, unified setting. The model allows us to better understand the observed intra-day patterns in bid-ask spreads, price volatility, transaction costs, as well as the autocorrelations of transaction returns and quote revisions. For example, the model simultaneously sheds light on why, over the day, (i) the variance of transaction price changes is U-shaped while the variance of ask price changes is declining, (ii) the bid-ask spread is U-shaped although information asymmetry and uncertainty over fundamentals is decreasing, and (iii) the autocorrelations of transaction price changes are large and negative, yet the autocorrelations of ask price changes are small and negative. In addition, the model s parameters also provide a natural metric of price discovery and effective trading costs, which may prove useful in future studies.

Capital regulation, risk-taking and monetary policy: A missing link in the transmission mechanism?

Abstract: Few areas of monetary economics have been studied as extensively as the transmission mechanism. The literature on this topic has evolved substantially over the years, following the waxing and waning of conceptual frameworks and the changing characteristics of the financial system. In this paper, taking as a starting point a brief overview of the extant work on the interaction between capital regulation, the business cycle and the transmission mechanism, we offer some broader reflections on the characteristics of the transmission mechanism in light of the evolution of the financial system. We argue that insufficient attention has so far been paid to the link between monetary policy and the perception and pricing of risk by economic agents—what might be termed the “risk-taking channel” of monetary policy. We develop the concept, compare it with current views of the transmission mechanism, explore its mutually reinforcing link with “liquidity” and analyse its interaction with monetary policy reaction functions. We argue that changes in the financial system and prudential regulation may have increased the importance of the risk-taking channel and that prevailing macroeconomic paradigms and associated models are not well suited to capturing it, thereby also reducing their effectiveness as guides to monetary policy.

Why Do Security Prices Change? A Transaction-Level Analysis of NYSE Stocks

Abstract: This article develops and tests a structural model of intraday price formation that embodies public information shocks and microstructure effects. We use the model to analyze intraday patterns in bid-ask spreads, price volatility, transaction costs, and return and quote autocorrelations, and to construct metrics for price discovery and effective trading costs. Information asymmetry and uncertainty over fundamentals decrease over the day, although transaction costs increase. The results help explain the U-shaped pattern in intraday bid-ask spreads and volatility, and are also consistent with the intraday decline in the variance of ask price changes. Article published by Oxford University Press on behalf of the Society for Financial Studies in its journal, The Review of Financial Studies.

Pricing and hedging derivative securities in markets with uncertain volatilities

Abstract: We present a model for pricing and hedging derivative securities and option portfolios in an environment where the volatility is not known precisely, but is assumed instead to lie between two extreme values σminand σmax. These bounds could be inferred from extreme values of the implied volatilities of liquid options, or from high-low peaks in historical stock- or option-implied volatilities. They can be viewed as defining a confidence interval for future volatility values. We show that the extremal non-arbitrageable prices for the derivative asset which arise as the volatility paths vary in such a band can be described by a non-linear PDE, which we call the Black-Scholes-Barenblatt equation. In this equation, the ‘pricing’ volatility is selected dynamically from the two extreme values, σmin, σmax, according to the convexity of the value-function. A simple algorithm for solving the equation by finite-differencing or a trinomial tree is presented. We show that this model captures the importance of diversifi...

A Quantitative Comparison of Stochastic Mortality Models Using Data from England & Wales and the United States

Abstract: We compare quantitatively eight stochastic models explaining improvements in mortality rates in England &Wales and in the US. On the basis of the Bayes Information Criterion (BIC), we find that an extension of the Cairns, Blake & Dowd (2006b) model that incorporates the cohort effect fits the England & Wales data best, while for US data, the Renshaw & Haberman (2006) extension to the Lee & Carter (1992) model that also allows for a cohort effect provides the best fit. However, we identify problems with the robustness of parameter estimates of these models over different time periods. A different extension to the Cairns, Blake & Dowd (2006b) model that allows not only for a cohort effect, but also for a quadratic age effect, while ranking below the other models in terms of the BIC, exhibits parameter stability across different time periods for both data sets. This model also shows, for both data sets, that there have been approximately linear improvements over time in mortality rates at all ages, but that the improvements have been greater at lower ages than at higher ages, and that there are significant cohort effects.