This study examines the assumption that the exchange rate follows a log-normal probability distribution and it tests whether different stochastic specifications translate into important differences in implied option prices. The authors investigate a class of processes, which includes the...

Lucas (2003) argues that the potential welfare gains from stabilizing the business cycle are small. In fact, he shows that the benefits of eliminating all economic fluctuations are small, especially when compared with the potential gains from other reforms. His estimates are obtained using...