In this paper we estimate the value of the embedded option in U.S. Treasury Inflation Protected Securities (TIPS). The option value exhibits significant time variation that is correlated with periods of deflationary expectations. We use our estimated option values to construct an embedded option...

Practitioners needing estimates of a firm's equity cost of capital have long relied on the Capital Asset Pricing Model (CAPM). Recent evidence casts renewed doubt on the validity of the CAPM and beta. However, there is not much evidence to gauge the importance of the rejections of the CAPM in a...

This paper analyzes the implications of a balanced budget fiscal policy rule for the determinacy of the price level in a cash-in-advance economy under three alternative monetary policy regimes. It shows that, in such stylized models with flexible prices and a period-by-period balanced budget...

The forecast evaluation literature has traditionally focused on methods for assessing point-forecasts. However, in the context of risk models, interest centers on more than just a single point of the forecast distribution. For example, value-at-risk (VaR) models, which are currently in extremely...