I’m interested in pursuing research at the intersection of finance and mathematics, including:
On Sources of Risk Premia in Representative Agent Models
with David Schreindorfer. Draft coming soon!
We use option prices and realized returns to decompose unconditional risk premia into different parts of the return state space. In the data, about two thirds of the equity premium is associated with monthly returns between -20% and -10% (“crashes”). Because crashes are rare, our finding implies that they are associated with high marginal utility for investors. We show that leading asset pricing models based on habits, long run risks, and rare disasters imply that crash states account for less than 1/10 of the equity premium. The main sources of market risk premia are therefore left unexplained. Alternative calibrations of the models suggest that this shortcoming is likely a result of misspecified utility functions.
with Sunil Wahal. Draft coming soon!
We study the anatomy of four non-bespoke institutional trading algorithms. Proprietary data provides parent orders and the sequences of child submissions, fills, and cancellations that they generate. The sample consists of 2.3 million parent orders between 2012 and 2016 that represent $675 billion in demand. These parent orders generate almost 300 million child submissions that represent $2.1 trillion in notional volume which ultimately result in $388 billion in traded volume. Each algorithm encodes design features that exploit the market’s microstructure to achieve its objective. We estimate partial correlations between child-level fill rates and trading costs and a variety of hitherto unobservable microstructure choice variables. These correlations suggest that the complexity of electronic trading reflects nuances in the price, quantity, and time tradeoffs that are primitive to trading. The endogenous nature of these tradeoffs implies that one cannot recover structural parameters. However, we estimate bounds on the tradeoffs by estimating the opportunity costs of unfilled parent orders.
Simulation of a Financial Market: The Possibility of Catastrophic Disequilibrium
with Amit Sinha, Kelly Roos, & Philip Horvath. Revise and Resubmit at Chaos, Solitons, & Fractals
Heterogeneous Labor Income Risk and Household Portfolio Choice