The tail risk surface

Jungkyu Ahn and Yongkil Ahn

Finance Research Letters, 2023, vol. 58, issue PC

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.

Keywords: Tail risk; Surface; Swaptions; Predictability; Feature extraction techniques (search for similar items in EconPapers)
JEL-codes: G12 G13 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:58:y:2023:i:pc:s1544612323008693

DOI: 10.1016/j.frl.2023.104497

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