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A Critique of the Literature on the US Financial Debt Crisis
Stein, Jerome L. - CESifo - 2010
A healthy financial system encourages the efficient allocation of capital and risk. The collapse of the house price bubble led to the financial crisis that started in 2007. There is a large empirical literature concerning the relation between asset price bubbles and financial crises. I evaluate...
Persistent link: https://www.econbiz.de/10008534053
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Application of Stochastic Optimal Control to Financial Market Debt Crises
Stein, Jerome L. - CESifo - 2009
This interdisciplinary paper explains how mathematical techniques of stochastic optimal control can be applied to the recent subprime mortgage crisis. Why did the financial markets fail to anticipate the recent debt crisis, despite the large literature in mathematical finance concerning optimal...
Persistent link: https://www.econbiz.de/10005094473
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Dark Clouds or Silver Linings? Knightian Uncertainty and Climate Change
Chen, Yu-Fu; Funke, Michael; Glanemann, Nicole - CESifo - 2011
-time real option modelling framework. We analytically determine optimal intertemporal climate policies under ambiguity …
Persistent link: https://www.econbiz.de/10009221550
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A Tale of Two Debt Crises: A Stochastic Optimal Control Analysis
Stein, Jerome L. - CESifo - 2008
Banks should evaluate whether a borrower is likely to default. I apply several techniques in the extensive mathematical literature of stochastic optimal control/dynamic programming to derive an optimal debt in an environment where there are risks on both the asset and liabilities sides. The...
Persistent link: https://www.econbiz.de/10005406070
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Optimal Growth and Impatience: A Phase Diagram Analysis
Chang, Fwu-Ranq - CESifo - 2004
In this paper we show that we can replace the assumption of constant discount rate in the one-sector optimal growth model with the assumption of decreasing marginal impatience without losing major properties of the model. In particular, we show that the steady state exists, is unique, and has a...
Persistent link: https://www.econbiz.de/10005406366
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Once Upon a Time Preference - How Rationality and Risk Aversion Change the Rationale for Discounting
Traeger, Christian - CESifo - 2012
The paper develops an axiomatic framework for rational decision making. The von Neumann-Morgenstern axioms give rise to a richer risk attitude than that captured in the standard discounted expected utility model. I derive three models that permit a more comprehensive risk evaluation. These...
Persistent link: https://www.econbiz.de/10010544183
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Risk-Taking-Neutral Background Risk
Franke, Guenter; Schlesinger, Harris; Stapleton, Richard C. - CESifo - 2013
We define a class of risk-taking-neutral (RTN) background risks. These background risks have the property that they will not alter decisions made with respect to another risk, for individuals with HARA utility. If we wish to compare a decision made with and without some exogenous background...
Persistent link: https://www.econbiz.de/10010877707
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Discounting in an Uncertain World - Disentangling the Debate on the Weitzman-Gollier Puzzle
Buchholz, Wolfgang - CESifo - 2014
Under conditions of risk it makes a difference whether the discount rate is determined as an expected present or as an expected future value. This difference which is dubbed as the Weitzman-Gollier puzzle has stimulated an intensive discussion which, however, is somewhat confusing. In this paper...
Persistent link: https://www.econbiz.de/10010948878
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Investment, Resolution of Risk, and the Role of Affect
Winden, Frans Van; Krawczyk, Michal; Hopfensitz, Astrid - CESifo - 2010
This experimental study is concerned with the impact of the timing of the resolution of risk on people’s willingness to take risks, with a special focus on the role of affect. While the importance of anticipatory emotions has so far been only inferred from decisions regarding hypothetical...
Persistent link: https://www.econbiz.de/10008583738
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When is Ambiguity-Attitude Constant?
Eichberger, Jürgen; Grant, Simon; Kelsey, David - CESifo - 2012
This paper studies how updating affects ambiguity-attitude. In particular we focus on the generalized Bayesian update … of the Jaffray-Phillipe sub-class of Choquet Expected Utility preferences. We find conditions for ambiguity-attitude to … be the same before and after updating. A necessary and sufficient condition for ambiguity-attitude to be unchanged when …
Persistent link: https://www.econbiz.de/10010539152