Date of Award
Spring 5-18-2018
Degree Name
Doctor of Business
Degree Type
Dissertation
Abstract
This paper investigates jump risk and return characteristics of currency carry trades by employing both empirical approach and analytical method. With country-level stochastic discount factor, a mathematical model is proposed to describe carry trade return dynamics that capture jump risk. Carry trade returns are modeled as jump-diffusion processes where types of jumps involve global and idiosyncratic jumps. We derive the first four moments of return process on exchange rates and use the method of moments to estimate parameters, which show the model matches excess carry trade returns in data quite well. Empirical findings show that carry trade returns exhibit an asymmetric leptokurtic feature. We also conduct asset pricing model testing and obtain results suggest that the skewness factor is a driving force to carry trade returns.
Chair and Committee
Ngoc-Khanh Tran, Thomas Maurer, Guofu Zhou
Recommended Citation
Chen, Chitsun, "Skewness Risk, Jump-Diffusion Modeling and Pricing in Carry Trade" (2018). Doctor of Business Administration Dissertations. 5.
https://openscholarship.wustl.edu/dba/5
Included in
Business Administration, Management, and Operations Commons, Finance and Financial Management Commons