Chicago Booth professor shares the AQR Insight Award for research on credit risk

Pietro Veronesi, Roman Family Professor of Finance at the University of Chicago Booth School of Business, has been chosen as one of the winners of the 2015 AQR Insight Award for his research on credit risk.

Awarded by AQR Capital Management since 2012, the Insight Award recognizes "important, unpublished papers that provide the most significant, new practical insights for tax-exempt institutional or taxable investor portfolios."

"I am happy our paper was selected as winner of this award, especially because of the seriousness of the awarding committee," Veronesi said. "Hopefully, the award will provide additional exposure to our new methodology to provide benchmarks for credit risk using option prices."

Veronesi, along with co-authors Christopher L. Culp of Johns Hopkins University and Swiss Finance Institute and Yoshio Nozawa of the Federal Reserve Board, tied for First Place for their paper "Option-Based Credit Spreads."

AQR says that "Option-Based Credit Spreads" "offers a novel, model-free benchmark for credit risk analysis, which can be used to run empirical experiments on credit-spread biases, the impact of asset uncertainty, and bank-related rollover risk."

"We empirically uncover a strong similarity between real corporate bonds and fictitious bonds that are made up by U.S. Treasuries minus put options," says Veronesi. "Our fictitious bonds offer a new empirical methodology to study credit risk using data but in a controlled environment."

The other First Place paper is "Commodity Trade and the Carry Trade: A Tale of Two Countries" by Robert Ready of the University of Rochester Simon School of Business, Nikolai Roussanov of the Wharton School, who received his doctorate from Chicago Booth, and Colin Ward of the University of Minnesota Carlson School of Management. The First Prize papers will share the $100,000 prize equally.

Juhani T. Linnainmaa, associate professor of finance at Chicago Booth, received honorable mention for his paper "Common Factors in Return Seasonalities," written with Matti Keloharju and Peter M. Nyberg, both of the Aalto University School of Business.

Veronesi is the third Booth faculty member to win the award, following Eric Budish, who won in 2014 for his paper "The High-Frequency Trading Arms Race: Frequent Batch Auctions as a Market Design Response," and Bryan Kelly, who won the inaugural award in 2012 for "Market Expectations in the Cross Section of Present Values." Amit Seru won the Distinguished Paper Award in 2013 for "Asset Quality Misrepresentation by Financial Intermediaries: Evidence from the Residential Mortgage-backed Securities Market."

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From: Ethan Grove, Chicago Booth Office of Media Relations, 773.834.5161 (office), 773.420.8670 (cell),  Ethan.Grove@chicagobooth.edu