The paper considers ways of avoiding a liquidity trap and ways of getting out of one. Unless lower short nominal interest rates are associated with significantly lower interest volatility, a lower average rate of inflation, which will be associated with lower expected nominal interest rates,...

The paper considers two small analytical models, one Old-Keynesian, the other New-Keynesian, possessing equilibria where nominal interest rates at all maturities can be stuck at their zero lower bound. When the authorities remove the zero nominal interest rate floor by adopting an augmented...

The paper considers ways of avoiding a liquidity trap and ways of getting out of one. Unless lower short nominal interest rates are associated with significantly lower interest volatility, a lower average rate of inflation, which will be associated with lower expected nominal interest rates,...

Implied probability density functions (PDFs) estimated from cross-sections of observed options prices are gaining increasing attention amongst academics and practitioners. However, to date little attention has been paid to the robustness of these estimates or to the confidence users can place in...

Cross-sections of option prices embed the risk-neutral probability densities functions (PDFs) for the future values of the underlying asset. Theory suggests that risk-neutral PDFs differ from market expectations due to risk premia. Using a utility function to adjust the risk-neutral PDF to...

Implied probability density functions (PDFs) estimated from cross-sections of observed option prices are gaining increasing attention amongst academics and practitioners. To date, however, little attention has been paid to the robustness of these estimates or to the confidence that users can...

The goal of this study is to measure market prices of risk and the associated foreign exchange risk premia extending the approach proposed by Balduzzi and Robotti (2001) to an international framework. Estimations of minimum variance stochastic discount factors permits the determination of market...

"This paper uses implied volatilities from foreign exchange option prices and the results of no-arbitrage theory to estimate foreign exchange risk premia. In particular, under the assumption of no-arbitrage, the foreign exchange risk premium is driven by the difference between investors' market...