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Asian and Australian options: A common perspective

Ewald, Christian-Oliver; Menkens, Olaf; Hung Marten … - In: Journal of Economic Dynamics and Control 37 (2013) 5, pp. 1001-1018

We show that Australian options are equivalent to fixed or floating strike Asian options and consequently that by studying Asian options from the Australian perspective and vice versa, much can be gained. One specific application of this “Australian approach” leads to a natural dimension...

Persistent link: https://www.econbiz.de/10011051870

Large traders and illiquid options: Hedging vs. manipulation

Kraft, Holger; Kühn, Christoph - In: Journal of Economic Dynamics and Control 35 (2011) 11, pp. 1898-1915

In this article, we study the effects on derivative pricing arising from price impacts by large traders. When a large … trader issues a derivative and (partially) hedges his risk by trading in the underlying, he influences both his hedge … portfolio and the derivative's payoff. In a Black–Scholes model with a price impact on the drift, we analyze the resulting trade …

Persistent link: https://www.econbiz.de/10011051894

Good timing: The economics of optimal stopping

Davis, Graham A.; Cairns, Robert D. - In: Journal of Economic Dynamics and Control 36 (2012) 2, pp. 255-265

This paper presents an economic interpretation of the optimal “stopping” of perpetual project opportunities under both certainty and uncertainty. Prior to stopping, the expected rate of return from delay exceeds the rate of interest. The expected rate of return from delay is the sum of the...

Persistent link: https://www.econbiz.de/10011051951

Unconventional government debt purchases as a supplement to conventional monetary policy

Ellison, Martin; Tischbirek, Andreas - In: Journal of Economic Dynamics and Control 43 (2014) C, pp. 199-217

In response to the Great Financial Crisis, the Federal Reserve, the Bank of England and many other central banks have adopted unconventional monetary policy instruments. We investigate if one of these, purchases of long-term government debt, could be a valuable addition to conventional...

Persistent link: https://www.econbiz.de/10010776905

Modeling urban housing market dynamics: Can the socio-spatial segregation preserve some social diversity?

Gauvin, Laetitia; Vignes, Annick; Nadal, Jean-Pierre - In: Journal of Economic Dynamics and Control 37 (2013) 7, pp. 1300-1321

Addressing issues of social diversity, we introduce a model of housing transactions between agents who are heterogeneous in their willingness to pay. A key assumption is that agents' preferences for a location depend on both an intrinsic attractiveness and on the social characteristics of the...

Persistent link: https://www.econbiz.de/10010871030

Solvability of perturbation solutions in DSGE models

Lan, Hong; Meyer-Gohde, Alexander - In: Journal of Economic Dynamics and Control 45 (2014) C, pp. 366-388

We prove that the undetermined Taylor series coefficients of local approximations to the policy function of arbitrary order in a wide class of discrete time dynamic stochastic general equilibrium (DSGE) models are solvable by standard DSGE perturbation methods under regularity and saddle point...

Persistent link: https://www.econbiz.de/10011051885

Repeated moral hazard and recursive Lagrangeans

Mele, Antonio - In: Journal of Economic Dynamics and Control 42 (2014) C, pp. 69-85

This paper shows how to solve dynamic agency models by extending recursive Lagrangean techniques à laMarcet and Marimon (2011) to problems with hidden actions. The method has many advantages with respect to the promised utilities approach (Abreu et al., 1990): it is a significant improvement in...

Persistent link: https://www.econbiz.de/10011051900

Numerical issues in threshold autoregressive modeling of time series

Coakley, Jerry; Fuertes, Ana-Marı́a; Pérez, … - In: Journal of Economic Dynamics and Control 27 (2003) 11, pp. 2219-2242

This paper analyses the contribution of various numerical approaches to making the estimation of threshold autoregressive time series more efficient. It relies on the computational advantages of QR factorizations and proposes Givens transformations to update these factors for sequential LS...

Persistent link: https://www.econbiz.de/10011051968

Fitted value function iteration with probability one contractions

Pál, Jenő; Stachurski, John - In: Journal of Economic Dynamics and Control 37 (2013) 1, pp. 251-264

This paper studies a value function iteration algorithm based on nonexpansive function approximation and Monte Carlo integration that can be applied to almost all stationary dynamic programming problems. The method can be represented using a randomized fitted Bellman operator and a corresponding...

Persistent link: https://www.econbiz.de/10011051986

Regime switching in stochastic models of commodity prices: An application to an optimal tree harvesting problem

Chen, Shan; Insley, Margaret - In: Journal of Economic Dynamics and Control 36 (2012) 2, pp. 201-219

This paper investigates whether a regime switching model of stochastic lumber prices is better for the analysis of optimal harvesting problems in forestry than a more traditional single regime model. Prices of lumber derivatives are used to calibrate a regime switching model, with each of two...

Persistent link: https://www.econbiz.de/10010577445