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The tail risk surface

Author

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  • Ahn, Jungkyu
  • Ahn, Yongkil

Abstract

This study utilizes swaptions data to quantify tail risk through the lens of the fixed income derivatives market. We adopt a non-parametric and model-independent approach to characterize tail risks in a three-dimensional space–time object. We further show that the implied tail risk surface has the predictive contents for stock returns, default risk, and economic uncertainty. There is a significant wedge between the proposed tail risk surface and the asset price dynamics in the financial market.

Suggested Citation

  • Ahn, Jungkyu & Ahn, Yongkil, 2023. "The tail risk surface," Finance Research Letters, Elsevier, vol. 58(PC).
    • Handle: RePEc:eee:finlet:v:58:y:2023:i:pc:s1544612323008693
    DOI: 10.1016/j.frl.2023.104497
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    References listed on IDEAS

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    More about this item

    Keywords

    Tail risk; Surface; Swaptions; Predictability; Feature extraction techniques;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing

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