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Research Seminar: Stochastic Dominance in the Frictionless World: A Research Agenda

Research Seminar: Stochastic Dominance in the Frictionless World: A Research Agenda

Nazarbayev University Graduate School of Business invites you to the Research Seminar titled "Stochastic Dominance in the Frictionless World: A Research Agenda" by Dr. Stylianos Perrakis

Abstract

Empirical index option research has followed two very distinct tracks that have very little overlap. The overwhelming majority of the studies assume away the intermediate option market and extract a unique price from within the observed bid-ask spread. They then try to reconcile empirically that price with two parallel models of the asset dynamics of the index, the one extracted from the index itself and a risk neutral one from the option market, which is assumed to be efficiently priced. Stochastic dominance (SD) on the other hand has been applied empirically in very few studies and only in the presence of frictions, and has uncovered several anomalies that so far are unexplained. In this paper I demonstrate how to apply SD empirically to a frictionless market for the case of Jump GARCH asset dynamics, with brief references to other alternative models. The paper also presents the design of tests of the assumption that the option market is efficient in the frictionless world, by developing metrics for the exploitation of efficiency violations and testing them by out-of-sample tests. Last, it discusses the profitability of the intermediate market, which has never to our knowledge been examined, except in a trivial sense, and links it to the frictionless SD tests.

Area: Finance

Time: 6 pm - 7 pm

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Date:

Wednesday, May 05, 2021

Time:

18:00

Location:

ZOOM

Speaker

Stylianos Perrakis

Professor

Stylianos Perrakis holds a Diploma in Mechanical-Electrical Engineering from the National Technical University in Athens, Greece, and an MSc and PhD from the University of California at Berkeley. He has also taught as a full professor at the University of Ottawa, and as a Visiting Professor at the University of Geneva, Switzerland, the University of California, Santa Barbara, the École Supérieure de Commerce of Reims, France, and the Athens Laboratory of Business Administration in Greece. Dr. Perrakis has published widely in Economics, Finance and Management Science over the last 40 years. His articles have appeared in (among others) The American Economic Review, The Review of Economic Studies, The International Economic Review, Management Science, The Journal of Finance, The Journal of Business, The Review of Financial Studies, The Journal of Financial and Quantitative Analysis, The Journal of Futures Markets, The Journal of Banking and Finance, The Journal of Economic Dynamics and Control, The International Journal of Industrial Organization, and Economic Letters. He is also author of a monograph on Canadian Industrial Organization and co-author of a textbook on Investments that is currently in its 8th edition. He acts as a referee for over 20 journals, has served on the editorial board of Finance, the official publication of the French Finance Association, and is currently Associate Editor of Risk and Decision Analysis and Editor of the Multinational Finance Journal. His latest research interests are option pricing under transaction costs, microstructure in option markets and credit derivatives. Dr. Perrakis has been the recipient of various distinctions throughout his career. Most recently, he was elected Fellow of the Royal Society of Canada in July 2007, became a member of Concordia University's Provost Circle of Distinction in July 2009 and was appointed RBC Professor of Financial Derivatives in June 2010. In 2013 he was elected member of the Board of Governors of the University of Macedonia, Thessaloniki, Greece.