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Working Paper
Simultaneous Spatial Panel Data Models with Common Shocks
I consider a simultaneous spatial panel data model, jointly modeling three effects: simultaneous effects, spatial effects and common shock effects. This joint modeling and consideration of cross-sectional heteroskedasticity result in a large number of incidental parameters. I propose two estimation approaches, a quasi-maximum likelihood (QML) method and an iterative generalized principal components (IGPC) method. I develop full inferential theories for the estimation approaches and study the trade-off between the model specifications and their respective asymptotic properties. I further ...
Working Paper
Options on Interbank Rates and Implied Disaster Risk
The identification of disaster risk has remained a significant challenge due to the rarity of macroeconomic disasters. We show that the interbank market can help characterize the time variation in disaster risk. We propose a risk-based model in which macroeconomic disasters are likely to coincide with interbank market failure. Using interbank rates and their options, we estimate our model via MLE and filter out the short-run and long-run components of disaster risk. Our estimation results are independent of the stock market and serve as an external validity test of rare disaster models, which ...
Working Paper
Quasi Maximum Likelihood Analysis of High Dimensional Constrained Factor Models
Factor models have been widely used in practice. However, an undesirable feature of a high dimensional factor model is that the model has too many parameters. An effective way to address this issue, proposed in a seminal work by Tsai and Tsay (2010), is to decompose the loadings matrix by a high-dimensional known matrix multiplying with a low-dimensional unknown matrix, which Tsai and Tsay (2010) name the constrained factor models. This paper investigates the estimation and inferential theory of constrained factor models under large-N and large-T setup, where N denotes the number of cross ...
Working Paper
Options on Interbank Rates and Implied Disaster Risk
The identification of disaster risk has remained a significant challenge due to the rarity of macroeconomic disasters. We show that the interbank market can help characterize the time variation in disaster risk. We propose a risk-based model in which macroeconomic disasters are likely to coincide with interbank market failure. Using interbank rates and their options, we estimate our model via MLE and filter out the short-run and long-run components of disaster risk. Our estimation results are independent of the stock market and serve as an external validity test of rare disaster models, which ...