Faced with the problem of pricing complex contingent claims, investors seek to make their valuations robust to model uncertainty. We construct a notion of a modeluncertainty-induced utility function and show that model uncertainty increases investors' effective risk aversion. Using this utility...

This paper presents further empirical evidence on the relationship between black market and official exchange rates in six emerging economies (Iran, India, Indonesia, Korea, Pakistan, and Thailand). First, it applies both time series techniques and heterogeneous panel methods to test for the...

This paper suggests a simple method based on a Chebyshev approximation at Chebyshev nodes to approximate partial differential equations. It consists in determining the value function by using a set of nodes and basis functions. We provide two examples: pricing a European option and determining...

This paper reviews panel unit root and cointegration tests in the context of PPP. It highlights various drawbacks of existing methods. First, unit root tests suffer from severe size distortions in the presence of negative moving average errors. Second, the common demeaning procedure to correct...

Abstract This paper estimates a reduced-form model to assess the credit risk of General Insurance (GI) non-life firms in the UK. Compared to earlier studies, it uses a much larger sample including 30 years of data for 515 firms, and also considers a much wider set of possible determinants of...

This paper estimates a reduced-form model to assess the credit risk of General Insurance (GI) non-life firms in the UK. Compared to earlier studies, it uses a much larger sample including 30 years of data for 515 firms, and also considers a much wider set of possible determinants of credit risk....

Hedge funds are fundamentally exposed to equity volatility, skewness, and kurtosis risks based on the systematic pattern and significant spread in alphas from the existing models that do not control for the higher-moment risks. The spread and pattern in alphas do not disappear with bootstrap...