State price density (SPD) and stochastic discount factor (SDF) are important elements
in asset pricing. In this thesis, I first propose to use projection pursuit regression
(PPR) and local polynomial regression (LPR) to estimate the SPD of interest rates nonparametrically.
By using a similar approach, I also estimate the delta values in the interest rate options and discusses how to delta-hedge these options. Unlike SPD measured in a risk-neutral economy, SDF is implied by an asset pricing model. It displays which prices are reasonable given the returns in the current period. Hansen and Jagannathan (1997) develop the Hansen-Jagannathan distance (HJ-distance) to measure pricing errors produced by SDF. While the HJ-distance has several desirable properties, Ahn and Gadarowski (2004) find that the specification test based on the HJ-distance overrejects correct models too severely in commonly used sample size to provide a valid test. This thesis proposes to improve the finite sample properties of the HJ-distance test by applying the shrinkage method (Ledoit and Wolf, 2003) to compute its weighting matrix. / Thesis (Ph.D, Economics) -- Queen's University, 2008-06-19 00:00:55.996
| Identifer | oai:union.ndltd.org:LACETR/oai:collectionscanada.gc.ca:OKQ.1974/1238 |
| Date | 19 June 2008 |
| Creators | Ren, Yu |
| Contributors | Queen's University (Kingston, Ont.). Theses (Queen's University (Kingston, Ont.)) |
| Source Sets | Library and Archives Canada ETDs Repository / Centre d'archives des thèses électroniques de Bibliothèque et Archives Canada |
| Language | English, English |
| Detected Language | English |
| Type | Thesis |
| Format | 873974 bytes, application/pdf |
| Rights | This publication is made available by the authority of the copyright owner solely for the purpose of private study and research and may not be copied or reproduced except as permitted by the copyright laws without written authority from the copyright owner. |
| Relation | Canadian theses |
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