We present a version of the exchange-rate regime model of inflation. We then use quarterly data from Mexico during 1946.I-1995.I to test and estimate a simultaneous equation model for wage inflation, price inflation and industrial produciton. In doing so, we respect the Lucas critique and take...

In this paper we investigate whether the currency risk is priced in international stock markets. We suggest a parsimonious version of the international capital asset pricing model with an EGARCH-M (1,1) specification of the second moments' dynamics of stock and currency returns, assuming that...

This paper presents a new numerical method for pricing American call options when the volatility of the price of the underlying stock is stochastic. By exploiting a log-linear relationship of the optimal exercise boundary with respect to volatility changes, we derive an integral representation...

This paper derives a general equilibrium option-pricing model for a European call assuming that the economy is exogenously driven by a dividend process following Hamilton's (1989) Markov regime switching model. The derived formula is used to investigate if the European call option prices are...

In this paper we introduce a pricing model for a European call option when the price of the underlying stock (asset) follows a random walk with Markov Chain type of shifts in the drift and volatility parameters according to the regime that the stock market lies in, at a given period of time. We...

In this paper we present a new method of approximating the risk neutral density (RND) from option prices based on the C-type Gram-Charlier series expansion (GCSE) of a probability density function. The exponential form of this type of GCSE guarantees that it will always give positive values of...

This paper derives exact formulas for retrieving risk neutral moments of future payoffs of any order from generic European-style option prices. It also provides an exact formula for retrieving the expected quadratic variation of the stock market implied by European option prices, which nowadays...

This paper provides new insights into the sources of bias of option implied volatility to forecast its physical counterpart. It argues that this bias can be attributed to volatility risk premium effects. The latter are found to depend on high order cumulants of the risk neutral density. These...