In the last decade, the potential macroeconomic effects of intermittent large adjustments in microeconomic decision variables such as prices, investment, consumption of durables or employment – a behavior which may be justified by the presence of kinked adjustment costs – have been studied...

This paper develops a general stochastic framework and an equilibrium asset pricing model that make clear how attitudes towards intertemporal substitution and risk matter for option pricing. In particular, we show under which statistical conditions option pricing formulas are not...

In this paper, we characterize the asymmetries of the smile through multiple leverage effects in a stochastic dynamic asset pricing framework. The dependence between price movements and future volatility is introduced through a set of latent state variables. These latent variables can capture...

Several studies have put forward the non-linear structure and option-like features of returns associated with hedge fund strategies. The authors provide a statistical methodology to test for such non-linear features with the returns on any benchmark portfolio. They estimate the portfolio of...

The authors extend the well-known Hansen and Jagannathan (HJ) volatility bound. HJ characterize the lower bound on the volatility of any admissible stochastic discount factor (SDF) that prices correctly a set of primitive asset returns. The authors characterize this lower bound for any...

Most empirical studies on liquidity constraints classify a consumer as being constrained on the basis of a single indicator such as the asset to income ratio. In this analysis, we model the probability that a consumer faces liquidity constraints as a function of multiple social and economic...

This paper focuses on whether monetary policy has asymmetric effects. By building on the Markov switching model introduced by Hamilton (1989), we examine questions like: Does monetary policy have the same effect regardless of the current phase of economic fluctuations? Given that the economy is...

This paper surveys recent developments in the theory of option pricing. The emphasis is on the interplay between option prices and investors' impatience and their aversion to risk. The traditional view, steeped in the risk-neutral approach to derivative pricing, has been that these preferences...

We provide new representation formulas for Malliavin derivatives of diffusions, based on a transformation of the underlying processes. Both the univariate and the multivariate cases are considered. First order as well as higher order Malliavin derivatives are characterized. Numerical...