In this paper we develop a rational expectations exchange rate model which is capable of confronting explicitly agents' beliefs about a future switch in exogenous driving processes. In our set-up the agents know with certainty both the initial exogenous process and the new process to be adopted...

In this study, we present a combinatory chaos analysis of daily wavelet-filtered (denoised) S&P 500 returns (2000–2020) compared with respective surrogate datasets, Brownian motion returns and a Lorenz system realisation. We show that the dynamics of the S&P 500 return series consist of an...

When changes in the economic policy regime occur stochastically, asset prices will reflect the possibility of such shifts. In this paper we apply techniques of regulated Brownian motion to obtain closed-form analytic price solutions when policy reaction functions are subject to prospective...

This article shows that, under some common assumptions, the pointwise synthetic control estimator would be unbiased if the outcome variable follows an autoregressive process. However, if such autoregressive process is nonstationary, then the variance of the pointwise estimator would be sensitive...

The COVID-19 pandemic has led to enormous movements in economic data that strongly affect parameters and forecasts obtained from standard VARs. One way to address these issues is to model extreme observations as random shifts in the stochastic volatility (SV) of VAR residuals. Specifically, we...

When does an entire income distribution f(x2) dominate f(x1)? When can we comprehensively say that f(x2) is ``richer'' than f(x1)? Anderson (1996) proposed a nonparametric quantification for pair-wise welfare-ordering of two countries by their entire income distributions. His algorithm readily...

We revisit the foundational Moment Formula proved by Roger Lee fifteen years ago. We show that when the underlying stock price martingale admits finite log-moments E[|log (S)|^q] for some positive q, the arbitrage-free growth in the left wing of the implied volatility smile is less constrained...

Financial derivatives linked to the median, which is the 50%-th percentile of a distribution, have not been extensively studied in realistic models of financial markets, as such derivatives simply did not exist until recently. The Libor reform that brought a seismic change to the interest rate...

This paper studies the optimal central bank intervention of interest rate problem, where the interest rate process is modelled by an Ornstein—Uhlenbeck (mean-reverting) process with a slowly varying stochastic volatility. The objective of the central bank is to maintain the interest rate close...

We propose a new framework named DS-WGAN that integrates the doubly stochastic (DS) structure and the Wasserstein generative adversarial networks (WGAN) to model, estimate, and simulate a wide class of arrival processes with general non-stationary and random arrival rates. Regarding statistical...