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<p>This dissertation studies applied econometric problems in volatility estimation
and CDS pricing. The first chapter studies estimation of loss given default from
CDS spreads for U.S. corporates. This paper combines a term structure model of credit
default swaps (CDS) with weak-identification robust methods to jointly estimate the
probability of default and the loss given default of the underlying firm. The model
is not globally identified because it forgoes parametric time series restrictions
that have ensured identification in previous studies, but that are also difficult
to verify in the data. The empirical results show that informative (small) confidence
sets for loss given default are estimated for half of the firm-months in the sample,
and most of these do not include the conventional value of 0.60. In addition, risk-neutral
default probabilities, and hence risk premia on default probabilities, are underestimated
when loss given default is exogenously fixed at the conventional value instead of
estimated from the data.</p><p>The second chapter, which is joint work with Andrew
Patton and Kevin Sheppard, studies the accuracy of a wide variety of estimators of
asset price</p><p>variation constructed from high-frequency data (so-called "realized
measures"), and compare them with a simple "realized variance" (RV) estimator. In
total, we consider over 400 different estimators, applied to 11 years of data on 31
different financial assets spanning five asset classes, including equities, equity
indices, exchange rates and interest rates. We apply data-based ranking methods to
the realized measures and to forecasts based on these measures. When 5-minute RV is
taken as the benchmark realized measure, we find little evidence that it is outperformed
by any of the other measures. When using inference methods that do not require specifying
a benchmark, we find some evidence that more sophisticated realized measures significantly
outperform 5-minute RV. In forecasting applications, we find that a low frequency
"truncated" RV</p><p>outperforms most other realized measures. Overall, we conclude
that it is</p><p>difficult to significantly beat 5-minute RV for these assets.</p>
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