Francis Longstaff
Biography
Francis A. Longstaff is a certified public accountant (CPA) and a chartered financial analyst (CFA). From 1995 to 1998, Longstaff was head of fixed income derivative research at Salomon Brothers Inc. in New York. He has also worked in the research department of the Chicago Board of Trade and for Deloitte and Touche as a management consultant.
His current research interests include:
1. Fixed income markets and term structure theory;
2. Derivative markets and valuation theory;
3. Credit risk;
4. Computational finance;
5. Liquidity and its effects on prices and markets;
6. The role of arbitrage in financial markets.
Several of his recent term structure papers have focused on the expectations hypothesis. Recent papers in the area of derivatives have focused on the valuation of American options by simulation and on the valuation of interest rate derivatives in string models of the term structure. Other recent papers provide upper bounds on the size of discounts for lack of liquidity that can be sustained in financial markets and also examine the risk/return relationship for hedge funds investing in pure arbitrage opportunities when there are margin constraints. He has published nearly 70 articles in academic and practitioner journals.
Many of his valuation models have been used widely on Wall Street and throughout the global financial markets. He has extensive experience as a consultant for many Wall Street firms, mutual funds, hedge funds, commercial banks and other financial institutions, software developers and risk management firms, as well as in litigation support. He is a frequent speaker at practitioner seminars and conferences.
Education
Ph.D. Finance, 1987, University of Chicago
B.A. Accounting, 1982, University of Utah
MBA, 1980, University of Utah
B.A.Finance, 1979, University of Utah (Magna Cum Laude)
Research Publications
The Market Risk Premium for Unsecured Consumer Credit Risk (with M. Fleckenstein), Review of Financial Studies. Forthcoming
Asset Mispricing (with K. Lewis and L. Petrasek), Journal of Financial Economics, 141, 981-1006, 2021.
Renting Balance Sheet Space: Intermediary Balance Sheet Rental Costs and the Valuation of Derivatives, (with M. Fleckenstein), Review of Financial Studies 33, 5051-5091, 2020.
The US Treasury floating rate note puzzle: Is there a premium for mark-to-market stability? (with M. Fleckenstein), Journal of Financial Economics 137, 637-658, 2020.
Corporate Taxes and Leverage: A Long-Term Historical Perspective (with M. Fleckenstein and I. Strebulaev), Critical Finance Review 9, 1-2 , 2020.
Valuing Thinly-Traded Assets (Francis A. Longstaff), Management Science, 1-11, 2017 May 24.
Macroeconomic-Driven Prepayment Risk and the Valuation of Mortgage-Backed Securities (with Mikhail Chernov and Brett R. Dunn), The Review of Financial Studies 31, 1132-1183, 2017 Dec.
Advance Refundings of Municipal Bonds (with Andrew Ang, Richard C. Green, and Yuhang Xing), The Journal of Finance 72, 1645-1682, 2017 August.
Deflation Risk (with Matthias Fleckenstein, and Hanno Lustig), The Review of Financial Studies 30, 2719-2760, 2017 February.
How Does the Market Value Toxic Assets? (with Brett Myers). Journal of Financial and Quantitative Analysis 49, 297-320, 2014.
The Tips-Treasury Puzzle (with Matthias Fleckenstein and Hanno Lustig), The Journal of Finance 69, 215-2197, 2014.
Disagreement and Asset Prices (with Bruce Carlin and Kyle Matoba), Journal of Financial Economics 114, 226-238, 2014.
Macroeconomic Effects of Corporate Default Crises: A Long-Term Perspective, (with Kay Giesecke, Stephen Schaefer, and Ilya Strebulaev), Journal of Financial Economics 111, 297-310, 2014
Systemic Sovereign Credit Risk: Lessons from the U.S. and Europe (with Andrew Ang), Journal of Monetary Economics 60, 493-510, 2013.
Asset Pricing and the Credit Market (with Jiang Wang) Review of Financial Studies 25 (11), 3169-3215, 2012.
Counterparty Credit Risk and the Valuation of Credit Default Swaps (with N. Arora and P. Gandhi), Journal of Financial Economics 103, 280-293, 2012.
Corporate Bond Default Risk: A 150-Year Perspective (with K. Giesecke, I. Strebulaev and S. Schaefer), Journal of Financial Economics 102, 233-250, 2011
How Sovereign is Sovereign Credit Risk? (with J. Pan, L. Pedersen and K. Singleton), American Economic Journal: Macroeconomics 3, 75-103, 2011.
Municipal Debt and Marginal Tax Rates: Is There a Tax Premium in Asset Prices?, Journal of Finance 66, 721-751, 2011.
The Subprime Credit Crisis and Contagion in Financial Markets, Journal of Financial Economics 97, 436-450, 2010.
Portfolio Claustrophobia: Asset Pricing in Markets with Illiquid Assets, American Economic Review, 99, 1119-1144, 2009
Systemic Credit Risk: What is the Market Telling Us? (with Vineer Bhangali and Robert Gingrich), Financial Analysts Journal, 64, July/August 16-24, 2008
An Empirical Analysis of the Pricing of Collateralized Debt Obligations (with Arvind Rajan), Journal of Finance, 63, 509-563, 2008
Two Trees (with John Cochrane and Pedro Santa-Clara), Review of Financial Studies, 21, 247-385, 2008
The U.S. Treasury Buyback Auctions: The Cost of Retiring Illiquid Bonds (with Bing Han and Craig Merrill), Journal of Finance 62, 2673-2693, 2007.
Risk and Return in Fixed Income Arbitrage: Nickels in Front of a Steamroller? (with Jefferson Duarte and Fan Yu), Review of Financial Studies, 769-811, 2007.
The Market Price of Risk in Interest Rate Swaps: The Roles of Default and Liquidity Risks (with Jun Liu and Ravit Mandell), The Journal of Business 79, 5, 2337-2360, September 2006.
Borrower Credit and the Valuation of Mortage-Backed Securities, Real Estate Economics 33, 619-661, 2005.
Corporate Yield Spreads: Default Risk or Liquity? New Evidence from the Credit-Default Swap Market (with Sanjay Mithal and Eric Neis), The Journal of Finance 60, 2213-2253, 2005.
Corporate Earnings and the Equity Premium (with Monika Piazzesi), Journal of Financial Economics 74, 401-421, 2004.
Electricity Forward Prices: A High-Frequency Empirical Analysis (with Ashley Wang), The Journal of Finance 59, 1877-1900, 2004.
Losing Money on Arbitrages: Optimal Dynamic Portfolio Choice in Markets with Arbitrage Opportunities (with Jun Liu), The Review of Financial Studies 17, 611-641, 2004.
The Flight to Liquidity Premium in U.S. Treasury Bond Prices, The Journal of Business 77, 511-526, 2004.
Paper Millionaires: How Valuable is Stock to a Stockholder Who is Restricted from Selling it?, The Journal of Financial Economics 67, 385-410, 2003.
Dynamic Asset Allocations with Event Risk (with Jun Liu and Jun Pan), The Journal of Finance 58, 1, 231-259, February 2003.
The Relative Valuation of Caps and Swaptions: Theory and Empirical Evidence (with Pedro Santa-Clara & Eduardo S. Schwartz), The Journal of Finance 56, 6, 2067, December 2001.
Throwing Away a Billion Dollars: The Cost of Suboptimal Exercise Strategies in the Swaptions Market (with Pedro Santa-Clara & Eduardo S. Schwartz), Journal of Financial Economics 62, 39-66, 2001.
Valuing American Options By Simulation: A Simple Least-Squares Approach (with Eduardo S. Schwartz), The Review of Financial Studies 14, 1, 113-147, Spring 2001.
Optimal Portfolio Choice and the Valuation of Illiquid Securities, The Review of Financial Studies, 14, 407-431, 2001
The Term Structure of Very Short Term Rates: New Evidence for the Expectations Hypothesis, Journal of Financial Economics58, 397-415, 2000.
Financial Innovation and the Role of Derivative Securities: An Empirical Analysis of the Treasury STRIPS Program (with Mark Grinblatt) Journal of Finance 55, 1415-1436, June 2000.
Arbitrage and the Expectations Hypothesis, The Journal of Finance 55, 989-994, 2000.
Valuing Futures and Options on Volatility (with Andreas Grunbichler), Journal of Banking & Finance 20, 985-1001, 1996.
Placing No-Arbitrage Bounds on the Value of Nonmarketable and Thinly-Traded Securities, Advances in Futures and Options Research 8, 203-228, 1996.
Throwing Good Money After Bad? Cash Infusions and Distressed Real Estate (with Bradford Cornell and Eduardo Schwartz), Real Estate Economics 24, 23-41, 1996.
Valuing Credit Derivatives (with Eduardo Schwartz) The Journal of Fixed Income 5, 6-12, June 1995.
Hedging Interest Rate Risk with Options on Average Interest Rates, The Journal of Fixed Income, 37-45, March 1995.
How Much Can Marketability Affect Security Values?, The Journal of Finance 50, 1767-1774, 1995.
A Simple Approach to Valuing Risky Fixed and Floating Rate Debt (with Eduardo S. Schwartz), The Journal of Finance 50, 789-819, 1995.
Option Pricing and the Martingale Restriction, The Review of Financial Studies 8, 1091-1124, 1995.
Calling Nonconvertible Debt and the Problem of Related Wealth Transfer Effects (with B.A. Tuckman), Financial Management 23, 21-27, 1994.
Electronic Screen Trading and the Transmission of Information: An Empirical Examination (with Andreas Grunbichler and Eduardo S. Schwartz), Journal of Financial Intermediation 3, 166-187, 1994.
Implementation of the Longstaff-Schwartz Interest Rate Model (with Eduardo S. Schwartz), The Journal of Fixed Income 3, 7-14, September 1993.
Interest Rate Volatility and Bond Prices (with Eduardo S. Schartz), Financial Analysts Journal 49, 70-74, July-August 1993.
Bid-Ask Spreads and Trading Activity in the S&P 100 Index Options Market (with Thomas J. George), Journal of Financial and Quantitative Analysis 28, 381-397, 1993
The Valuation of Options on Coupon Bonds, Journal of Banking & Finance 17, 27-42, 1993.
A Two-Factor Interest-Rate Model and Contingent Claims Valuation (with Eduardo S. Schwartz), The Journal of Fixed Income 2, 16-23, December 1992.
Interest Rate Volatility and the Term Structure: A Two-Factor General Equilibrium Model (with Eduardo S. Schartz), The Journal of Finance 47, 1259-1282, 1992.
Are Negative Option Prices Possible? The Callable U.S. Treasury-Bond Puzzle, Journal of Business 65, 571-592, 1992.
Multiple Equilibria and Term Structure Models, Journal of Financial Economics 32, 333-344, 1992
Dual Trading in Futures Markets (with Michael J. Fishman), The Journal of Finance 47, 643-671, 1990.
An Empirical Comparison of Alternative Models of the Short-Term Interest Rate (with K.C. Chan, G. Andrew Karolyi, and Anthony B. Sanders), Journal of Finance 47, 1209-1227, 1992.
General Equilibrium Stock Index Futures Prices: Theory and Empirical Evidence (with Michael L. Hemler), Journal of Financial and Quantitative Analysis 26, 287-308, 1991.
The Valuation of Options on Yields, Journal of Financial Economics 26, 97-121, 1990.
Time Varying Term Premia and Traditional Hypotheses about the Term Structure, The Journal of Finance 45, 1307-1314, 1990.
Pricing Options with Extendible Maturities: Analysis and Applications, The Journal of Finance 45, 935-957, 1990.
Temporal Aggregation and the Continuous-Time Capital Asset Pricing Model, The Journal of Finance 44, 871-887, 1989.
A Nonlinear General Equilibrium Model of the Term Structure of Interest Rates, Journal of Financial Economics 23, 195-224, 1989.
Pricing Options on Agricultural Futures: An Application of the Constant Elasticity of Variance Option Pricing Model, The Journal of Futures Markets, 247-258, Summer 1985.
Other Publications
Another look at the size of the low-surface brightness galaxy VCC 1661 in the Virgo Cluster (with A.Koch, C.Black, R.M. Rich, M.Collins, and J. Janz) Astronomical Notes 338: 4, 503-509, 2017
A Formal Method for Identifying District States of Variability in Time-Varying Sources: Sgr A* as an Example (with L. Meyer, G. Witzel, and A.M. Ghez), Astrophysical Journal 791:24, 2014 August 10.
From Dwarf to Stream: A Tidally Distorted Dwarf Galaxy Near NGC 4449 (with P.M Rick, M.L.M Collins, C.M. Black, A. Lock, A. Bengon, and D.B. Reitzel), Nature 482, 9 February 2012, 192-194.