In this paper the pricing of currency options in a target zone model is discussed. The movement of the currency index is a product of the movement within the target zone and jumps in the target zone itself in the form of re- or devaluations. The probability of a re- or devaluation is modelled as...

Intertemporal shifts in conduct, such as a transition from competitive to anti-competitive behavior, induce shifts in the firms’ equilibrium price configurations. Such shifts generate non-stationary price dynamics in addition to those which originate from exogenous fundamentals. We exploit...

The earlier work on the optimal design of the national security has focused on the opportunity cost of the draft in terms of foregone human capital formation. The current paper introduces the national security into the welfare analysis missing from the earlier work. This creates a trade-off...

We characterize the conditions under which industry-wide agreements on refund policies weaken price competition. We identify the conditions under which joint industry proffit increases with the amount of refunds promised to those consumers who cancel a reservation or return a product. We compare...

A smooth exchange rate target zone solution that internalizes the time inconsistency problem and is completely free from speculation incentives exists where the monetary resources available for an exchange rate defense are limited and the target zone collapses with probability one. In the unique...