Examines the effects of optionality in finance
On Friday 26 August 2019 Giovanni Bruno will hold a trial lecture on a prescribed topic and defend his thesis for the PhD degree at NHH.
Prescribed topic for the trial lecture:
Smart beta strategies
Trial lecture:
10:15 in Karl Borch Aud, NHH
Title of the thesis:
Essays on Optionality and Risk
Summary:
The object of the thesis is the relationship between optionality and risk in financial applications. Optionality may be described as the existence of the right to do something without the obligation. It introduces asymmetries that can distort the linearity of the risk-return relationship of financial securities and the incentives of the economic agents managing risk.
The thesis is composed of three self-contained chapters that examine the effects of optionality in different areas of finance: equity, derivatives and counterparty risk management.
The first chapter investigates the idiosyncratic-volatility (IVOL) puzzle, which is the anomalous observation that stocks with low IVOL have higher expected returns than high IVOL stocks. Bruno shows, analytically and empirically, that the optionality introduced by leverage creates a negative cross-sectional relationship between the IVOL of the firm's assets and the expected returns of its equity. This chapter is co-authored with Jørgen Haug.
The second chapter presents a parsimonious model, which is used to describe how call options respond differently to changes in idiosyncratic versus systematic risk. This chapter is also co-authored with Jørgen Haug.
The final chapter concerns the relationship between exposure to a counterparty into a derivative contract, that has an option-like payoff, and counterparty risk. I show that the correlation across exposures of different counterparties decreases the benefits of the introduction of central clearing and that this may affect the incentives of the central clearing institutions.
Defense:
12:15 in Karl Borch Aud, NHH
Members of the evaluation committee:
Associate Professor Fransisco Santos, Department of Finance, NHH
Associate Professor Thomas Kokholm, Aarhus University
Professor Christian Wagner, WU Vienna University of Economics and Business
Supervisor:
Professor Svein-Arne Persson, Department of Finance, NHH
The trial lecture and thesis defence will be open to the public.