We present a simple theory of business-cycle movements of option prices and volumes. This theory relies on time-varying heterogeneity between agents in their demand for insurance against aggregate risk. Formally, we build an infinite-horizon model where agents face an aggregate risk, but also...

We consider the channel consisting in transferring the credit risk associated with refinancing operations between financial institutions to market participants. In particular, we analyze liquidity and volatility premia on the French government debt securities market, since these assets are used...

We examine the effects of collateral provision as a potential channel between funding liquidity tensions and the scarcity of market liquidity. This channel consists in transferring the credit risk associated with refinancing operations between financial institutions to market participants that...

The entropy principle yields, for a given set moments, a density that involves the smallest amount of prior information. We first show how entropy densities may be constructed in a numerically efficient way as the minimization of a potential. Next, for the case where the first four moments are...

Recent empirical literature documents that unexpected changes in the nominal interest rates have a significant effect on stock prices: a 25-basis point increase in the Fed funds rate is associated with an immediate decrease in broad stock indices that may range from 0.5 to 2.3 percent, followed...

In this paper, we propose a model of the joint dynamics of euro-area sovereign yield curves. The arbitrage-free valuation framework involves five factors and two regimes, one of the latter being interpreted as a crisis regime. These common factors and regimes explain most of the fluctuations in...

In this paper, we present a general discrete-time affine framework aimed at jointly modeling yield curves associated with different debtors. The underlying fixed-income securities may differ in terms of credit quality and/or in terms of liquidity. The risk factors follow conditionally Gaussian...

A large part of the term structure literature interprets the first underlying factors as a level factor, a slope factor, and a curvature factor. In this paper we consider factor models interpretable as a level factor model, a level and a slope factor model, respectively. We prove that such...

The purpose of the paper is to propose a global discrete-time modeling of the term structure of interest rates able to capture simultaneously the following important features : (i) an historical dynamics of the factor driving term structure shapes involving several lagged values, and switching...

This paper studies the relationship between consumption and wealth based on the concept of cointegration. The analysis focuses on French data over the 1987 - 2006 period. This relationship is expressed in two ways: in terms of Marginal Propensity to Consume out of wealth (MPC) and in terms of...