We study a new class of three-factor affine option pricing models with interdependent volatilitydynamics and a stochastic skewness component unrelated to volatility shocks. Theseproperties are useful in order (i) to model a term structure of implied volatility skews moreconsistent with the data...

We show that since 1994, branching deregulations in the U.S have signi…cantly af-fected the supply of mortgage credit, and ultimately house prices. With deregulation,the number and volume of originated mortgage loans increase, while denial rates fall.But the deregulation has no effect on a...

Market frictions inhibit perfect replication of property derivatives and dene the property spreadas a price measure in the incomplete real estate market. We identify transaction costs, transactiontime and short sale constraints as the main frictions in this market. Based on these frictions,...

Most time series models used in econometrics and empirical finance are estimated withmaximum likelihood methods, in particular when interest centers on density and Value{at{Risk (VaR) prediction. The standard maximum likelihood principle implicitly placesequal weight on each of the observations...

Consider an investor trading dynamically to maximize expectedutility from terminal wealth. Our aim is to study the dependencebetween her risk aversion and the distribution of the optimal terminalpayo. Economic intuition suggests that high risk aversion leads to arather concentrated distribution,...

An equivalent !-martingale measure (E!MM) for a given stochastic process Sis a probability measure R equivalent to the original measure P such that S isan R-!-martingale. Existence of an E!MM is equivalent to a classical absenceof-arbitrage property of S, and is invariant if we replace the...

We use a user-cost model to study how dispersed information among housing marketparticipants a¤ects the equilibrium house price. In the model, agents are disparatelyinformed about local economic conditions, consume housing services, and speculate onprice changes. Information dispersion leads...

We study a quadratic BSDE in a continuous filtration with an unbounded generatorand an infinite time horizon. This equation comes from a stochasticcontrol problem in the context of robust utility maximisation.[...]

We introduce a framework for analyzing the interplay between credit risk and collateralmarket risk on loan pricing. To do this, we decompose any loan into an unsecured and asecured part. Further we explicitly consider the recovery process. The framework allows usto develop semi-analytical...

This paper studies the asset pricing implications of a general equi-librium model in which real investment is reversible at a cost. Firmsface higher costs in contracting than in expanding their capital stockand decide to invest when their productive capital is scarce relativeto the overall...