This paper highlights a framework for analysing dynamic hedging strategies under transaction costs. First, self-financing portfolio dynamics under transaction costs are modelled as being portfolio affine. An algorithm for computing the moments of the hedging error on a lattice under portfolio...

The appropriate monetary policy response to an asset price bubble remains unclear and is one of the most contentious issues currently facing central banks. Some have argued that monetary policy should be used to contain or reduce an asset price bubble in order to alleviate its adverse...

Presentation to the 18th Annual Hyman P. Minsky Conference on the State of the U.S. and World Economies—“Meeting the Challenges of the Financial Crisis”

This Economic Letter is adapted from a speech delivered by Janet L. Yellen, president and CEO of the Federal Reserve Bank of San Francisco, to the 18th Annual Hyman P. Minsky Conference on the State of the U.S. and World Economies on April 16, 2009, in New York City.

Purpose – This paper aims to examine the pricing effects of risks conditional on market situations. Design/methodology/approach – The model used to test for the conditional pricing effects of risks is a modified version of Pettengill et al. 's cross‐sectional regression model, based on...

Presentation to the 18th Annual Hyman P. Minsky Conference on the State of the U.S. and World Economies—“Meeting the Challenges of the Financial Crisis”

Purpose – The purpose of this paper is to examine the impact of trades by informed traders and uninformed traders on the asymmetric volatility relation, a stylized fact that has long been puzzling financial economists. Avramov, Chordia, and Goyal's hypothesized that asymmetric volatility,...

Purpose – The purpose of this paper is to examine the impact of trades by informed traders and uninformed traders on the asymmetric volatility relation, a stylized fact that has long been puzzling financial economists. Avramov, Chordia, and Goyal's hypothesized that asymmetric volatility,...

Purpose – This paper aims to examine the pricing effects of risks conditional on market situations. Design/methodology/approach – The model used to test for the conditional pricing effects of risks is a modified version of Pettengill et al.'s cross-sectional regression model, based on Hong...

The popular practice of selling market volatility through selling straddles exposes traders and investors to substantial risk, especially in equity markets. The returns can be very lucrative, but the probability of large negative returns far exceeds the probability of large positive returns. In...