COURSE EMPIRICAL FINANCE FOR MONETARY POLICY KINGSTON, JAMAICA FROM JULY 7 TO 11TH, 2014 PRELIMINARY PROGRAM Monday 07, July 8:15-8:45 Registration 8:45-8:55 Welcome Mr. Brian Wynter Governor, Bank of Jamaica 8:55-9:10 Opening Remarks Mr. John Robinson Senior Deputy Governor, Bank of Jamaica Adviser - Econometric Modelling, Financial Stability and Financial Markets Centre for Central Banking Studies Adviser - Monetary Operations and Financial Markets, Centre for Central Banking Studies 9:10-9:15 House Keeping Arrangements and Group Photograph Mrs. Andrea Clarke, Chairperson, Bank of Jamaica 9:15-10:30 Introduction to Empirical Finance What can asset prices add to our understanding? Modelling the yield curve What moves the interest-rate term structure? The principle of no-arbitrage Asset returns and the stochastic discount factor The factor structure of the stochastic discount factor Affine term-structure models 11:00-12:30 Introduction to Yield Curves - Yield-Only Models (Nelson-Siegel, Svensson) Plotting a continuous yield curve: some fundamental issues
Term-structure modelling: the factor model and principal components Fundamental and preference-free term-structure models Parametric techniques for modelling the yield curve 14: 00-15:15 Introduction to Yield Curves II - Dynamic Nelson-Siegel and Yield-Macro Models The yield-only dynamic Nelson-Siegel model The yield-macro dynamic Nelson-Siegel model The role of no-arbitrage 15:30-16:30 Yield Curve Exercise I Specification and estimation of Nelson-Siegel and Svensson term-structure Principal components 18:00-19:30 Cocktail Reception Tuesday, 08 July 9:00-10:30 Yield Curve Exercise II Specification and estimation of yield-only dynamic Nelson-Siegel term-structure Specification and estimation of yield-macro dynamic Nelson-Siegel term-structure 10:30-11:00 Coffee Break 11:00-12:30 Affine Term Structure Models Introduction to affine term structure models The stochastic discount factor The affine approach (Simple) estimation of affine term structure models The model of Adrian, Crumb and Mönch (2013)
14:00-15:15 Affine Term Structure Model Exercise An affine term structure model of Government of Jamaica bonds using the Adrian, Crumb and Mönch (2013) methodology in EViews 15:30-16:30 Macrofinance Combining the structure implied by an affine term structure model with a properly specified macromodel Implications of macrofinance models for foreign-exchange risk premia and term premia Wednesday, 09 July 9:00-10:30 Volatility Modelling: ARCH, GARCH and Stochastic Volatility Motivation Autoregressive conditionally heteroskedastic (ARCH) models Generalised autoregressive conditionally heteroskedastic (GARCH) models Extensions Multivariate GARCH Stochastic volatility Forecasting and densities 11:00-12:30 Volatility Modelling Exercise Modelling Jamaican dollar (Mexican peso) exchange rate volatility against the US dollar and identifying an appropriate GARCH model 14:00-15:15 Exercise on Volatility Modelling: GARCH Volatility Forecasting with Densities and Fan Charts from GARCH Models
Real-world densities from volatility models Applying the technique: creating and extracting a probability density for the Mexican peso exchange rate in EViews Drawing a fanchart around the volatility forecast 15:30-16:30 The Kalman Filter and its Application to Finance Typical uses of state-space models and the Kalman filter What is the state-space representation? State-space models and statistical inference The Kalman filter State-space models and the Kalman filter in EViews 18:00-19:30 Social Activity Thursday, 10 July 8:30 9:00 Registration 9:00-10:30 Kalman Filter Exercise Practical applications of state-space models and the Kalman filter in empirical finance Estimation of the simple stochastic volatility model 10:30-11:00 Coffee break 11:00-12:30 Introduction to Options and Probability Density Functions The basics of options Implied volatility The Breeden-Litzenberger result The Taylor/Shimko approach Real world densities by utility and calibration 14:00-15:15 Probability Density Function Exercise I Implementing the Taylor/Shimko approach for oil price options in excel
Adjusting to real-world densities Some MATLAB code Extensions 15:30-16:30 Drawing Probability Density Functions for Exchange Rates Currency options The Malz approach Friday, 11 July 9:00-10:30 Probability Density Function Exercise II Implementing the Malz approach for Mexican peso exchange rate options Some Matlab code Comparing option implied and volatility model derived densities 11:00-12:30 Round-Up and Q&A Session and 14:00-14:30 Closing Ceremony 19:00 Farewell Dinner