In this paper we construct a model of stock market, interest rate and output interaction which is a generalization of the well known 1981 model of Blanchard. We allow for imperfect substitutability between stocks and bonds in the asset market and for lagged portfolio adjustment. The reaction of...

This paper considers the measurement of the equity risk premium in financial markets from a new perspective that picks up on a suggestion from Merton (1980) to use implied volatility of options on a market portfolio as a direct ‘ex-ante’ estimate for market variance, and hence the risk...

A discrete time model of a financial market is developed, in which heterogeneous interacting groups of agents allocate their wealth between two risky assets and a riskless asset. In each period each group formulates its demand for the risky assets and the risk-free asset according to myopic...

This paper examines the pricing of interest rate derivatives when the interest rate dynamics experience infrequent jump shocks modelled as a Poisson process. The pricing framework adapted was developed by Chiarella and Nikitopoulos to provide an extension of the Heath, Jarrow and Morton model to...

Hedging interest rate exposures using interest rate futures contracts requires some knowledge of the volatility function of the interest rates. Use of historical data as well as interest rate options like caps and swaptions to estimate this volatility function have been proposed in the...

We consider the American option pricing problem in the case where the underlying asset follows a jump-diffusion process. We apply the method of Jamshidian to transform the problem of solving a homogeneous integro-partial differential equation (IPDE) on a region restricted by the early exercise...

The paper describes and compares different methods of extracting the implied probability distribution of the underlying interest rate futures from the prices of traded options on these futures as well as from past futures prices. These methods are applied to short-term contracts on bank accepted...

This paper empirically assesses heterogeneous expectations in asset pricing. We use a maximum likelihood approach on S&P500 data to estimate a structural model. Our empirical results are consistent with a market populated with fundamentalists and chartists. In addition, agents switch between...

Hyman Minsky is renowned for his theoretical and empirical investigation of the capitalist economy. In this book, a distinguished group of contributors provides an authoritative account of his contribution to the analysis of capitalism and, more particularly, to the fields of monetary and post...