data are acquired from CreditTrade. This research is partially supported by a grant from

This paper investigates variance risk premia in energy commodities, particularly crude oil and natural gas, using a robust model-independent approach. Over a period of 11 years, we find that the average variance risk premia are negative for both energy commodities. Energy variance risk premia in dollar terms are time-varying, while energy variance risk premia in return terms, particularly in the case of natural gas, are more constant over time. Finally, the return profile of a natural gas variance swap resembles that of a call option, while the return profile of a crude oil variance swap, if anything, resembles the return profile of a put option. The annualized Sharpe ratios from shorting energy variance are sizable. Although not nearly as high as the annualized Sharpe ratio of shorting S&P 500 index variance, they are comparable to those of shorting interest rate volatility or variance on individual stocks. JEL Classification: G13

This paper analyzes possible arbitrage opportunities in credit derivatives markets using self-…nancing strategies combining Credit Default Swaps and Asset Swaps Packages. We present a new statistical arbitrage test based on the subsampling methodology which has lower Type I error and selects arbitrage opportunities with lower downside risk than existing alternatives. Using four di¤erent databases covering the period from 2005 to 2009, long-run (cointegration) and statistical arbitrage analysis are performed. Before the subprime crisis, we …nd long-run arbitrage opportunities in 27 % of the cases and statistical arbitrage opportunities in 29 % of the cases. During the crisis, arbitrage opportunities decrease to 9 % and 17%, respectively. After considering funding and trading costs, we …nd statistical arbitrage opportunities in 16 % of the cases before the crisis but never during the crisis. Arbitrage opportunities are more frequent in the case of relatively low rated bonds.

This paper investigates the effects of mortgage-backed securities (MBS) hedging activity on interest-rate volatility and proposes a model that takes these effects into account. An empirical examination suggests that the inclusion of information about MBS considerably improves model performance in pricing interest-rate options and in forecasting future interest-rate volatility. The empirical results are consistent with the hypothesis that MBS hedging affects both the interest-rate volatility implied by options and the actual interest-rate volatility. The results also indicate that the inclusion of information about the MBS universe may result in models that better describe the price of fixed-income securities.

effects of sell-side debt research on debt and equity markets

Currency markets have soared to have a trading volume of over $4 trillion a day. The $4 trillion is a 20 % gain in the global foreign exchange markets from $3.3 trillion in 2007. 4 Over the years, the players in currency markets, the world’s largest financial markets, 5 have changed. Traditionally, foreign exchange markets were mostly only a network of bank