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The paper investigates portfolio strategies and derivative market making when the trader does not know the correct model. One of the puzzles from last summer's LTCM collapse was that when the Russian government defaulted, liquidity dried up. Antidotal evidence suggests that people were unable to...
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Mathematical models of bond pricing are used by both academics and Wall Street practitioners, with practitioners introducing time-dependent parameters to fit arbitrage-free models to selected asset prices. We show, in a simple one-factor setting, that the ability of such models to reproduce a...
Persistent link: https://www.econbiz.de/10005777633
This paper integrates models of atemporal risk preference that relax the independence axiom into a recursive intertemporal asset-pricing framework. The resulting models are amenable to empirical analysis using market data and standard Euler equation methods. We are thereby able to provide the...
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This paper studies the time series behaviour of aggregate consumption and asset returns when the representative agent does not (necessarily) maximize the expected value of a von Neumann-Morgenstern utility index. By assuming that agent's intertemporal preferences over stochastic consumption...
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