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...

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...

A rational-expectations equilibrium with positive demand for financial information does exist under fully revealing asset price - contrary to a wide-held conjecture. Generalizing the common additive signal-return model with CARA utility to the family of distributions with moment generating...

We study a general static noisy rational expectations model, where investors have private information about asset payoffs, with common and private components, and about their own exposure to an aggregate risk factor, and derive conditions for existence and uniqueness (or multiplicity) of...

A finite number of sellers (n) compete in schedules to supply an elastic demand. The costs of the sellers have uncertain common and private value components and there is no exogenous noise in the system. A Bayesian supply function equilibrium is characterized; the equilibrium is privately...

A model is presented of a uniform price auction where bidders compete in demand schedules; the model allows for common and private values in the absence of exogenous noise. It is shown how private information yields more market power than the levels seen with full information. Results obtained...

This paper presents a market with asymmetric information where a privately revealing equilibrium obtains in a competitive framework and where incentives to acquire information are preserved. The equilibrium is efficient, and the paradoxes associated with fully revealing rational expectations...

The eurozone has a single short-term nominal interest rate, but monetary policy conditions measured by real short-term interest rates varied substantially across countries in the period 2003-2010. We use this cross-country variation in the (local) tightness of monetary policy to examine its...

How should one evaluate investment projects whose CCAPM betas are uncertain? This question is particularly crucial for projects yielding long-lasting impacts on the economy, as is the case for example for many green investments. We define the notion of a certainty equivalent beta. We show that...

Because of the uncertainty about how to model the growth process of our economy, there is still much confusion about which discount rates should be used to evaluate actions having long-lasting impacts, as in the contexts of climate change, social security reforms or large public infrastructures...