Recently, Mr.Zhuo Xiaoyang from the Department of International Trade and Finance of our school and Professor Sanjay K. Nawalkhathe, University of Massachusetts, published a research paper entitled "A Theory of Equivalent Expectation Measures for Contingent Claim Returns" in Journal of Finance, a top finance journal.

In the financial market, both the industry and the academia are very familiar with how to calculate the yield to maturity of the bonds, how to price the options, and the related theories and applications are also very mature. But how should investors predict the yield of the bond if they expect it to sell early before it expires? In addition, when the investor buys the option, how should the investor calculate the returns if they expect to close the position before it expires? There have long been no good theoretical tools to calculate the returns of pending equity products, such as bonds, options, and financial derivatives, so it is difficult to answer the first two questions, but such questions are very important for investors.

Teacher Zhuo Xiaoyang and his collaborator Professor Sanjay K. Nawalkha's latest article presents a new theoretical approach that systematically solves the above problems. This method expands the traditional theory of equivalent martingale measure, and proposes a new probability measure method, —— R measure, which can be used to solve the expected return problem of most undetermined equity products in the financial market. Meanwhile, the article also shows how to apply this method to solve the expected returns of financial products such as options, treasury bonds, corporate bonds, and interest rate derivatives. Darrell Duffie, a distinguished professor of finance at Stanford University School of Business, spoke highly of the method as a “A big machine” awaiting for the application of financial market practice.

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

Paper link: https: / / onlinelibrary.wiley.com/doi/10.1111/jofi.13172

Professor Darrell Duffie commented on the paper:https://www.youtube.com/watch?v=4C4xmHxAu14&t=3s