We offer a model to explain why groups of people sometimes converge upon poor decisions and are prone to fads, even though they can discuss the outcomes of their choices. Models of informational herding or cascades have examined how rational individuals learn by observing predecessors' actions,...

I develop an interest rate model with separate factors driving innovations in bond yields and their covariances. My model features flexible and tractable affine structure for the covariances of bond yields. Maximum likelihood estimation of the model with panel data on swaptions and discount...

This paper examines whether investor sentiment about the stock market affects prices of the Samp;P 500 options. I find that the index option volatility smile is steeper (flatter) and the risk-neutralskewness of monthly index return is more (less) negative when market sentiment becomes more...