An understanding of volatility in stock markets is important for determining the cost of capital and for assessing investment and leverage decisions as volatility is synonymous with risk. Substantial changes in volatility of financial markets are capable of having significant negative effects on...

In this paper we check the relationschip between the yields of the Colombian bonds traded in the (secondary) internal market and the yields of the sovereign global securities for the sample period 1999-2001. The hypothesis we maintain is that, under the assumption of capital mobility, it should...

Using more than two years of daily interest rate cap price data, this paper provides a systematic documentation of a volatility smile in cap prices. We find that Black (1976) implied volatilities exhibit an asymmetric smile (sometimes called a sneer) with a stronger skew for in-the-money caps...

This paper introduces a tractable, structural model of subjective beliefs. Since agents that plan for the future care about expected future utility flows, current felicity can be increased by believing that better outcomes are more likely. On the other hand, expectations that are biased towards...

This paper studies predatory trading: trading that induces and/or exploits other investors' need to reduce their positions. We show that if one trader needs to sell, others also sell and subsequently buy back the asset. This leads to price overshooting, and a reduced liquidation value for the...

A large number of microeconomic decision variables such as investments, prices, inventories or employment are characterized by intermittent large adjustments. The behavior of those variables has been often modeled as following state-dependent rules. The optimality of such state-dependent rules...

The focus of this study is to build, from the ‘bottom-up’, a market with artificially intelligent adaptive agents based on the institutional arrangement of the Colombian Foreign Exchange Market (1994-1999) in order to determine simple agents’ design, rules and interactions that are...

It is a well accepted fact that stock returns data are often contaminated by market microstructure effects, such as bid-ask spreads, liquidity ratios, turnover, and asymmetric information. This is particularly relevant when dealing with high frequency data, which are often used to compute model...

Implied volatility generated from observed option prices reflects market expectations of future volatility. This paper determines whether or not, implied volatilities, and hence market expectations, contain any genuinely forward looking information not already captured by historical information....

It is a well accepted fact that stock returns data are often characterized by market microstructure effects, such as bid-ask spreads, liquidity ratios, turnover and asymmetric information. This is particularly relevant when dealing with high frequency data, which are often used to compute model...