I describe a tractable way to study macroeconomic quantities and asset prices in a large class of dynamic stochastic general equilibrium models. The proposed approximate solution is analytical, log-linear, and adjusted for risk. Therefore, it is well suited to investigate economic mechanisms,...

<Para ID="Par1">Recent years have seen growing interest in coherent risk measures, especially in Conditional Value-at-Risk (<InlineEquation ID="IEq1"> <EquationSource Format="TEX">$$\mathrm {CVaR}$$</EquationSource> <EquationSource Format="MATHML"> <math xmlns:xlink="http://www.w3.org/1999/xlink"> <mi mathvariant="normal">CVaR</mi> </math> </EquationSource> </InlineEquation>). Since <InlineEquation ID="IEq2"> <EquationSource Format="TEX">$$\mathrm {CVaR}$$</EquationSource> <EquationSource Format="MATHML"> <math xmlns:xlink="http://www.w3.org/1999/xlink"> <mi mathvariant="normal">CVaR</mi> </math> </EquationSource> </InlineEquation> is a convex function, it is suitable as an objective for optimization problems when we desire to minimize risk. In the...</equationsource></equationsource></inlineequation></equationsource></equationsource></inlineequation></para>

This paper lays out an algorithm that computes accurate second order solutions for dynamic stochastic general equilibrium models that are subject to indeterminacy of rational expectations.

This paper assesses the accuracy of decomposing income risk into permanent and transitory components using income and consumption data. We develop a specific approximation to the optimal consumption growth rule and use Monte Carlo evidence to show that this approximation can provide a robust...

We derive an estimator for Black-Scholes-Merton implied volatility that, when compared to the familiar Corrado & Miller [JBaF, 1996] estimator, has substantially higher approximation accuracy and extends over a wider region of moneyness.

The accuracy of the solution of dynamic general equilibrium models has become a major issue. Recent papers, in which second-order approximations have been substituted for first-order, indicate that this change may yield a significant improvement in accuracy. Second order approximations have been...

One of the most successful approaches to option hedging with transaction costs is the utility-based approach, pioneered by Hodges and Neuberger [Rev. Futures Markets, 1989, 8, 222-239]. Judging against the best possible trade-off between the risk and the costs of a hedging strategy, this...