This study examines asset price dynamics (i.e. the convergence speed) in the event of pre-announced conversion values and dates. The theoretical framework for these dynamics has been developed in De Grauwe et al. (1999). Two instances of conversion are examined, notably the 1879-Resumption of...

In this paper we solve a particular type of stochastic process switching problem where the terminal date is fixed but the terminal price may depend on past prices. We apply this framework to the effect of various conversion modalities currently discussed on exchange rate dynamics in the...

The presence of target zone nonlinearities is generally refuted in empirical research. We argue that this may be due to estimation being performed vis-a-vis official limits when monetary authorities are in fact targeting a narrower band. Estimation results for the Belgian and French franc...

Extant solutions for state-contingent process switching use first-passage time densities or differential equations. We alternatively employ transition probabilities. These conditional likelihood functions also have obvious appeal for econometric analyses as well as derivative pricing and...

This article examines currency option pricing within a credible target zone arrangement where interventions at the boundaries push the exchange rate back into its fluctuation band. Valuation of such options is complicated by the requirement that the reflection mechanism should prevent the...

This paper studies international financial integration by testing the law of one price across national borders. We use the distance between national discount factors as an integration measure and analyze the level of cross-border mispricing. The empirical analysis shows that pricing...

This paper presents an essentially affine model of the term structure of interest rates making use of macroeconomic factors and their long-run expectations. The model extends the approach pioneered by Kozicki and Tinsley (2001) by modeling consistently long-run inflation expectations...