Date of Award
Doctor of Business
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
Chen, Chitsun, "Skewness Risk, Jump-Diﬀusion Modeling and Pricing in Carry Trade" (2018). Doctor of Business Administration Dissertations. 5.