Photo of Sang Byung Seo

Sang Byung Seo

Research Interests: asset pricing, credit risk, derivatives markets, financial econometrics

Links: CV, Job Market Paper

Overview

I will be available for interviews at the 2015 ASSA meetings in Boston, MA in January 2015.


Contact Information

Phone: (267) 994-8052
Email: sangseo@wharton.upenn.edu
Address: 
2300 Steinberg-Dietrich Hall, 3620 Locust Walk, Philadelphia, PA 19104
 

Research Interests

Asset Pricing, Credit Risk, Derivatives Markets, Financial Econometrics
 

Job Market Paper
     Abstract: I investigate whether the possibility of economic catastrophes, defined as massive correlated defaults, is an important risk factor for asset pricing. I develop a model where default correlations among multiple firms arise through regime and belief shifts. From an estimation using the daily time series of CDS curves for 215 firms, I construct a catastrophic tail risk measure. Using the rich information contained in the term structure and various tail extremities of this measure, I find that investors put more weight on future extreme events even after the stock market showed signs of recovery from the recent financial crisis. Furthermore, I show that high catastrophic tail risk robustly predicts high future excess returns for various assets, including stocks, government bonds, and corporate bonds. This risk is negatively priced, generating substantial dispersion in the cross section of stock returns. These results reveal that seemingly impossible catastrophes are a significant source of risk perceived by investors.
 

Education

Ph.D. & M.A., Finance, The Wharton School, University of Pennsylvania, 2015 (Expected)

B.S., Management Engineering & Mathematics, Korea Advanced Institute of Science and Technology (KAIST), summa cum laude, valedictorian, 2007
 

Experience

Assistant Manager, Derivatives ModelingKorea Bond Pricing & Korea Ratings Co., 2007-2010
 

References

Jessica Wachter
Richard B. Worley Professor of Financial Management, Professor of Finance
Finance Department
The Wharton School
Phone: (215) 898-7634 
Email: jwachter@wharton.upenn.edu
Associate Professor of Finance
Finance Department
The Wharton School
Phone: (215) 746-0004
Email: nroussan@wharton.upenn.edu
Robert Morris Professor of Banking
Finance Department
The Wharton School
Phone: (215) 898-1241
Email: yarona@wharton.upenn.edu
 

 

Research

Research

Job Market Paper

     Abstract: I investigate whether the possibility of economic catastrophes, defined as massive correlated defaults, is an important risk factor for asset pricing. I develop a model where default correlations among multiple firms arise through regime and belief shifts. From an estimation using the daily time series of CDS curves for 215 firms, I construct a catastrophic tail risk measure. Using the rich information contained in the term structure and various tail extremities of this measure, I find that investors put more weight on future extreme events even after the stock market showed signs of recovery from the recent financial crisis. Furthermore, I show that high catastrophic tail risk robustly predicts high future excess returns for various assets, including stocks, government bonds, and corporate bonds. This risk is negatively priced, generating substantial dispersion in the cross section of stock returns. These results reveal that seemingly impossible catastrophes are a significant source of risk perceived by investors.

 

Other Working Papers


Option Prices in a Model with Stochastic Disaster Risk (with Jessica Wachter) 

     Abstract: Large rare shocks to aggregate consumption, namely, disasters, have been proposed as an explanation for the equity premium. However, recent work suggests that the consumption distribution required by this mechanism is inconsistent with the average implied volatility curve derived from option prices. We show that this apparent inconsistency can be resolved in a model with stochastic disaster risk. That is, we show that a model with a stochastic probability of disaster can explain average implied volatilities, despite being calibrated to consumption and aggregate market data alone. We also extend the stochastic disaster risk model to one that allows for variation in the risk of disaster at different time scales. We show that this extension allows the model to match variation in the level and slope of implied volatilities, as well as the average implied volatility curve.
 

Do Rare Events Explain CDX Tranche Spreads? (with Jessica Wachter)

     Abstract: The CDX is an index of credit default swaps on major U.S. Corporations. In the 2005--2009 period, contracts on the CDX as a whole and on tranches of the CDX were actively traded. Senior tranches are essentially deep out-of-the-money options because they do not incur any losses until a large number of investment-grade firms default. Because of the liquidity of these contracts, their spreads provide a unique window into how the market assesses the risk of a rare disaster. We propose a model to jointly explain the spreads on each CDX tranche, as well as prices on put options and the aggregate market. Our results demonstrate the importance of beliefs about rare events, even in periods of relatively high valuation. Moreover, our results show a basic consistency in these beliefs across different asset classes.

 


Awards And Honors

  • Wharton Doctoral Travel Grant, 2013 Description
  • Samsung Scholarship, Samsung Foundation, 2010-2015
  • Wharton Finance Fellowship, 2010-2015
  • Award of Korean Ministry of Science and Technology (granted to valedictorian), 2007
  • Department Scholarship, KAIST, 2005-2007
  • Global Leader Scholarship, Kim Young Han Foundation, 2004-2007
  • National Science and Technology Scholarship, Korea Research Foundation (full undergraduate scholarship), 2003-2007

Teaching

Teaching Fellowships

Teaching Assistant: The Wharton School, University of Pennsylvania

Financial Economics (Ph.D.), Professor Jessica Wachter, Fall 2011 & 2012

Continuous-time Financial Economics (Ph.D.), Professor Domenico Cuoco, Spring 2013

Advanced Seminar: Financial Engineering (MBA & Undergraduate), Professor Domenico Cuoco, Spring 2013

Wharton/KUBS Finance MBA Seminar, 2012, 2013, & 2014

 

Instructor: School of Arts and Sciences, University of Pennsylvania

Advanced Business Korean (Undergraduate), Spring 2012 to Spring 2014