The full Bayesian treatment of error component models typically relies on data augmentation to produce the required inference. Never stricly necessary a direct approach is always possible though not necessarily practical. The mechanics of direct sampling are outlined and a template for including...

We use Bayesian techniques to select factors in a general multifactor asset pricing model. From a given set of 15 factors we evaluate all possible pricing models by the extent to which they describe the data as given by the posterior model probabilities. Interest rates, premiums, returns on...

In this paper we derive tests for parameter constancy when the data generating process is non-stationary against the hypothesis that the parameters of the model change smoothly over time. To obtain the asymptotic distributions of the tests we generalize many theoretical results, as well as new...

In this paper we introduce the Smooth Permanent Surge [SPS] model. The model is an integrated non lineal moving average process with possibly unit roots in the moving average coefficients. The process nests the Stochastic Permanent Break [STOPBREAK] process by Engle and Smith (1999) and in a...

In this paper we study a fairly general Wiener driven model for the term structure of forward prices. The model, under a fixed martingale measure, Q, consists of two infinite dimensional stochastic differential equations (SDEs). The first system is a standard HJM model for (forward) interest...

We consider forward rate rate models of HJM type, as well as more general infinite dimensional SDEs, where the volatility/diffusion term is stochastic in the sense of being driven by a separate hidden Markov process. Within this framework we use the previously developed Hilbert space realization...