We develop a general equilibrium model of a production economy which has a risky production technology as well as a growth option to expand the scale of the productive sector of the economy. We show that when confronted with growth options, the representative consumer may sharply alter...

We introduce Indirect Robust Generalized Method of Moments (IRGMM), a new simulation-based estimation methodology, to model short-term interest rate processes. The primary advantage of IRGMM relative to classical estimators of the continuous-time short-rate diffusion processes is that it...

One fundamental issue in the study of market microstructures is that of price discovery. While most existing studies focus on the trading period, little is known whether and how much the non-trading period contributes to the price discovery. This paper offers a new perspective on the price...

The classic Lucas asset pricing model with complete markets stresses aggregate risk and, hence, fails to investigate the impact of agents heterogeneity on the dynamics of the equilibrium quantities and measures of trading volume. In this paper, we investigate under what conditions...

This paper develops a continuous-time model of liquidity provision by banks, in which customers can deposit and withdraw their funds strategically. The strategic withdrawal option introduces an incentive-compatibility problem that turns the problem of designing deposit contracts into a...

We assess the predictive accuracy of a large number of multivariate volatility models in terms of pricing options on the Dow Jones Industrial Average. We measure the value of model sophistication in terms of dollar losses by considering a set 248 multivariate models that differ in their...

This paper derives a general framework for collateral risk control determination in repurchase transactions or repos. The objective is to treat consistently heterogeneous collateral so that the collateral taker has a similar risk exposure whatever the collateral pledged. The framework measures...

We study a test statistic on the integrated squared difference between a kernel estimator of the copula density and a kernel smoothed estimator of the parametric copula density. We show for fixed smoothing parameters that the test is consistent and that the asymptotic properties are driven by a...

We consider distributional free inference to test for positive quadrant dependence, i.e.for the probability that two variables are simultaneously small (or large) being at least as great as it would be were they dependent. Tests for its generalisation in higher dimensions, namely positive...

We suggest an empirical model to analyze the investment style of individual hedge funds and funds of funds. Our approach is based on a mixture of the style analysis approach suggested by Sharpe (1988), the factor push approach used in stress testing, and historical simulation. An interesting and...