Shocks and Choices - an Analysis of Incomplete Market Models PDF Download

Author: Christoph Kühn
Publisher:
ISBN:
Category :
Languages : en
Pages : 131

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Author:
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Category :
Languages : en
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The thesis is divided into two parts: The first part deals with modelling long-range dependence in asset returns. Certain long-range dependence models, which have been suggested for financial modelling, fall outside the semimartingale set-up. We suggest Poisson shot noise processes as a skeleton of a long-range dependence model which provides an economic reasoning for long memory. We study weak convergence to a fractional Brownian motion. Whereas fractional Brownian motion allows for arbitrage, the shot noise processes themselves can be chosen arbitrage-free. As complement we also investigate shot noise processes which consist of shots with finite limits. They converge to a Brownian motion, i.e. they have the same asymptotic behaviour as compound Poisson processes. In the second part of the thesis we analyze American options and so-called "game options" in a general semimartingale setting. Game options naturally generalize American options by giving both counterparites the right to cancel the contract prematurely. Whereas in recent years various suggestions have been made how to price European-type contingent claims in incomplete markets, up to now there is only little corresponding literature dealing with American options. Pricing the latter is conceptually more involved: in addition to the uncertainty caused by the underlyings, one has to take the seller's ignorance of the buyer's exercise strategy into account. We generalize the "neutral derivative pricing" approach to American and game options which leads to unique "neutral" derivative price processes in incomplete markets. An alternative approach is "utility-based indifference pricing" which was firstly suggested by Hodges and Neuberger (1989) and which ist by now a standard concept to valuate European style derivatives in incomplete markets. We generalize this concept to American options and so-called "chooser options". It leads to a quite surprising result con.

Author: Matthew Shum
Publisher: World Scientific
ISBN: 981310967X
Category : Business & Economics
Languages : en
Pages : 154

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Economic Models for Industrial Organization focuses on the specification and estimation of econometric models for research in industrial organization. In recent decades, empirical work in industrial organization has moved towards dynamic and equilibrium models, involving econometric methods which have features distinct from those used in other areas of applied economics. These lecture notes, aimed for a first or second-year PhD course, motivate and explain these econometric methods, starting from simple models and building to models with the complexity observed in typical research papers. The covered topics include discrete-choice demand analysis, models of dynamic behavior and dynamic games, multiple equilibria in entry games and partial identification, and auction models.

Author: Martin D. D. Evans
Publisher: Princeton University Press
ISBN: 1400838843
Category : Business & Economics
Languages : en
Pages : 561

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A comprehensive and in-depth look at exchange-rate dynamics Variations in the foreign exchange market influence all aspects of the world economy, and understanding these dynamics is one of the great challenges of international economics. This book provides a new, comprehensive, and in-depth examination of the standard theories and latest research in exchange-rate economics. Covering a vast swath of theoretical and empirical work, the book explores established theories of exchange-rate determination using macroeconomic fundamentals, and presents unique microbased approaches that combine the insights of microstructure models with the macroeconomic forces driving currency trading. Macroeconomic models have long assumed that agents—households, firms, financial institutions, and central banks—all have the same information about the structure of the economy and therefore hold the same expectations and uncertainties regarding foreign currency returns. Microbased models, however, look at how heterogeneous information influences the trading decisions of agents and becomes embedded in exchange rates. Replicating key features of actual currency markets, these microbased models generate a rich array of empirical predictions concerning trading patterns and exchange-rate dynamics that are strongly supported by data. The models also show how changing macroeconomic conditions exert an influence on short-term exchange-rate dynamics via their impact on currency trading. Designed for graduate courses in international macroeconomics, international finance, and finance, and as a go-to reference for researchers in international economics, Exchange-Rate Dynamics guides readers through a range of literature on exchange-rate determination, offering fresh insights for further reading and research. Comprehensive and in-depth examination of the latest research in exchange-rate economics Outlines theoretical and empirical research across the spectrum of modeling approaches Presents new results on the importance of currency trading in exchange-rate determination Provides new perspectives on long-standing puzzles in exchange-rate economics End-of-chapter questions cement key ideas

Author: Angus Deaton
Publisher: Oxford University Press
ISBN: 9780198288244
Category : Business & Economics
Languages : en
Pages : 260

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Book Description
An overview of the saving and consumption patterns of households

Author: John Y. Campbell
Publisher: Princeton University Press
ISBN: 1400888220
Category : Business & Economics
Languages : en
Pages : 480

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Book Description
From the field's leading authority, the most authoritative and comprehensive advanced-level textbook on asset pricing In Financial Decisions and Markets, John Campbell, one of the field’s most respected authorities, provides a broad graduate-level overview of asset pricing. He introduces students to leading theories of portfolio choice, their implications for asset prices, and empirical patterns of risk and return in financial markets. Campbell emphasizes the interplay of theory and evidence, as theorists respond to empirical puzzles by developing models with new testable implications. The book shows how models make predictions not only about asset prices but also about investors’ financial positions, and how they often draw on insights from behavioral economics. After a careful introduction to single-period models, Campbell develops multiperiod models with time-varying discount rates, reviews the leading approaches to consumption-based asset pricing, and integrates the study of equities and fixed-income securities. He discusses models with heterogeneous agents who use financial markets to share their risks, but also may speculate against one another on the basis of different beliefs or private information. Campbell takes a broad view of the field, linking asset pricing to related areas, including financial econometrics, household finance, and macroeconomics. The textbook works in discrete time throughout, and does not require stochastic calculus. Problems are provided at the end of each chapter to challenge students to develop their understanding of the main issues in financial economics. The most comprehensive and balanced textbook on asset pricing available, Financial Decisions and Markets is an essential resource for all graduate students and practitioners in finance and related fields. Integrated treatment of asset pricing theory and empirical evidence Emphasis on investors’ decisions Broad view linking the field to financial econometrics, household finance, and macroeconomics Topics treated in discrete time, with no requirement for stochastic calculus Forthcoming solutions manual for problems available to professors

Author: Kenneth S. Rogoff
Publisher: MIT Press
ISBN: 0262572346
Category : Business & Economics
Languages : en
Pages : 479

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Book Description
The 20th NBER Macroeconomics Annual, covering questions at the cutting edge of macroeconomics that are central to current policy debates.

Author: Bengt Holmstrom
Publisher: MIT Press
ISBN: 0262518538
Category : Business & Economics
Languages : en
Pages : 263

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Book Description
Two leading economists develop a theory explaining the demand for and supply of liquid assets. Why do financial institutions, industrial companies, and households hold low-yielding money balances, Treasury bills, and other liquid assets? When and to what extent can the state and international financial markets make up for a shortage of liquid assets, allowing agents to save and share risk more effectively? These questions are at the center of all financial crises, including the current global one. In Inside and Outside Liquidity, leading economists Bengt Holmström and Jean Tirole offer an original, unified perspective on these questions. In a slight, but important, departure from the standard theory of finance, they show how imperfect pledgeability of corporate income leads to a demand for as well as a shortage of liquidity with interesting implications for the pricing of assets, investment decisions, and liquidity management. The government has an active role to play in improving risk-sharing between consumers with limited commitment power and firms dealing with the high costs of potential liquidity shortages. In this perspective, private risk-sharing is always imperfect and may lead to financial crises that can be alleviated through government interventions.

Author: Mr.Rabah Arezki
Publisher: International Monetary Fund
ISBN: 1513590766
Category : Business & Economics
Languages : en
Pages : 54

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This paper explores the effect of news shocks on the current account and other macroeconomic variables using worldwide giant oil discoveries as a directly observable measure of news shocks about future output ? the delay between a discovery and production is on average 4 to 6 years. We first present a two-sector small open economy model in order to predict the responses of macroeconomic aggregates to news of an oil discovery. We then estimate the effects of giant oil discoveries on a large panel of countries. Our empirical estimates are consistent with the predictions of the model. After an oil discovery, the current account and saving rate decline for the first 5 years and then rise sharply during the ensuing years. Investment rises robustly soon after the news arrives, while GDP does not increase until after 5 years. Employment rates fall slightly for a sustained period of time.

Author: Dimitrios D. Thomakos
Publisher: Springer
ISBN: 113744830X
Category : Business & Economics
Languages : en
Pages : 352

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Book Description
The recent financial crisis has generated many structural changes within the economy. Many issues are ongoing, and the question of how to recover from the crisis, and how to avoid another one, are continually addressed by scholars and practitioners everywhere. Where there is much discussion within academic and practitioner circles, there is not always adequate interaction between these schools of research. This book provides a thorough overview of the recent financial crisis from the perspective of both industry practitioners and academics specialising in the area. The first part provides practitioner insight on the crisis, and explores the causes and effects and of the recession, European public financing, ECB monetary policy and the Euro, the repression of financial markets, and financial stability. Part two focuses on the case of Greece, as a country still heavily impacted by the crisis, which has undergone various unorthodox policies imposed by the IMF, the ECB the EU. The third part provides insight from researchers and academics, covering an array of Economic theories and revealing new economics architectures available for the future. With informed views from both financial industry practitioners and academics, this book discusses current issues and implementable solutions for a faster post-crisis recovery.