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​BIT faculty member publishes latest research result in Journal of Finance

Date: 2022-08-12

News Source:School of Management and Economics

Editor: News Agency of BIT

Recently, Zhuo Xiaoyang, a faculty member of the Department of International Trade and Finance in the School of Management and Economics at BIT, and Professor Sanjay K. Nawalkha, a cooperator from the University of Massachusetts, published a research paper entitled "A Theory of Equivalent Expectation Measures for Contingent Claim Returns".

In the financial market, theories and application of bond maturity yields and option pricing are so developed for the industry and academia to be acquainted with.ma. However, how should the investor predict the yield on bonds if they are sold early before maturity? Furthermore, how should the investor predict the option returns when they are liquidated before the expiration date? For a long time, there have been no good theoretical tools to calculate the returns on contingent claimssuch as bonds, options and financial derivatives. So it is difficult to answer the two questions above while this kind of questions are very important to investors.

The latest paper by Zhuo Xiaoyang and Professor Sanjay K. Nawalkha presents a new theoretical approach that systematically addresses these issues. The approach extends the traditional equivalent martingale measure theory and proposes a new probability measure that can be used to solve the expected return problem for the vast majority of undetermined equity products in financial market, the equivalent expectation measure (R-measure). The article also shows how the method can be applied to solve the expected returns of financial products such as options, national bonds, corporate bonds and interest rate derivatives. Darrell Duffie, Distinguished Professor of Finance at Stanford University Business School, USA, highly praised the method as a powerful tool (A big machine) awaiting application in financial markets.

Journal of Finance is a top international journal in finance, ranking first among the three top finance journals (JF, JFE and RFS) with high academic reputation. It is one of the top 24 academic journals (UTD 24) in business schools, rated by the University of Texas, Dallas, USA and one of the top 50 journals (FT 50) in business schools, rated by the Financial Times.

Links to the paper: https://onlinelibrary.wiley.com/doi/10.1111/jofi.13172