Stability in macro models may be attained by the addition of heteroskedastic shocks. This is illustrated by stabilizing the Harrod-Domar model in one dimension. In two dimensions, a saddle point is required and the method is applied to the Buiter-Miller model. Choosing broadly Keynesian and...

A new stochastic process, termed the variance gamma process, is proposed as a model for the uncertainty underlying security prices. The unit period distribution is normal conditional on a variance that is distributed as a gamma variate. Its advantages include long tailedness, continuous-time...

Employing continuous arbitrage pricing principles, closed-form expressions for the term structure of interest rates as functions of two specific rates are developed. Model restrictions to the two one-dimensional submodels are tested and rejected, thereby supporting the hypothesis that the term...

The Cox, Ross, and Rubinstein binomial model is generalized to the multinomial case. Limits are investigated and shown to yield the Blacks-Scholes formula in the case of continuous sample paths for formula in the case of complete market structures. In the discontinuous case a Merton-type formula...