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Investment, Consumption, and Hedging Under Incomplete Markets
Wang, Neng - 2014
Entrepreneurs often face undiversifiable idiosyncratic risks from their business investments. We extend the standard real options approach to an incomplete markets environment and analyze the joint decisions of business investments, consumption/savings, and portfolio selection. For a lump-sum...
Persistent link: https://www.econbiz.de/10012751873
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A Nonparametric Approach to Pricing and Hedging Derivative Securities Via Learning Networks
Hutchinson, James M. - 2004
the practical relevance of our network pricing approach, we apply it to the pricing and delta-hedging of Samp;P 500 …
Persistent link: https://www.econbiz.de/10012786270
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Demand-Based Option Pricing
Garleanu, Nicolae - 2010
We model the demand-pressure effect on prices when options cannot be perfectly hedged. The model shows that demand pressure in one option contract increases its price by an amount proportional to the variance of the unhedgeable part of the option. Similarly, the demand pressure increases the...
Persistent link: https://www.econbiz.de/10012761687
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Sources of Entropy in Representative Agent Models
Backus, David K. - 2011
preferences, habits, and jumps. The metrics describe the pricing kernel's dispersion (the entropy of the title) and dynamics (time … dependence, a measure of how entropy varies over different time horizons). We show how each model generates entropy and time … approximations -- clarifies the mechanisms underlying these models. It also reveals, in some cases, tension between entropy, which …
Persistent link: https://www.econbiz.de/10013122464
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Evidence of Decreasing Internet Entropy : The Lack of Redundancy in Dns Resolution by Major Websites and Services
Bates, Samantha - 2018
This paper analyzes the extent to which the Internet's global domain name resolution (DNS) system has preserved its distributed resilience given the rise of cloud-based hosting and infrastructure. We explore trends in the concentration of the DNS space since at least 2011. In addition, we...
Persistent link: https://www.econbiz.de/10012927037
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Term Structures of Asset Prices and Returns
Backus, David K. - 2016
We explore the term structures of claims to a variety of cash flows, namely, U.S. government bonds (claims to dollars), foreign government bonds (claims to foreign currency), inflation-adjusted bonds (claims to the price index), and equity (claims to future equity indexes or dividends). The...
Persistent link: https://www.econbiz.de/10012994905
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Behavioral Implications of Rational Inattention with Shannon Entropy
Caplin, Andrew - 2013
entropy cost functions that better match this feature of the data and that retain key simplifying features of the Shannon …
Persistent link: https://www.econbiz.de/10013077941
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Rationally Inattentive Behavior : Characterizing and Generalizing Shannon Entropy
Caplin, Andrew - 2017
We provide a full behavioral characterization of the standard Shannon model of rational inattention. The key axiom is "Invariance under Compression", which identifies this model as capturing an ideal form of attention-constrained choice. We introduce tractable generalizations that allow for many...
Persistent link: https://www.econbiz.de/10012950055
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Optimal Price Indices for Targeting Inflation Under Incomplete Markets
Anand, Rahul - 2011
In models with complete markets, targeting core inflation enables monetary policy to maximize welfare by replicating the flexible price equilibrium. In this paper, we develop a two-sector two-good closed economy new Keynesian model to study the optimal choice of price index in markets with...
Persistent link: https://www.econbiz.de/10013133080
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On the Pricing of Intermediated Risks : Theory and Application to Catastrophe Reinsurance
Froot, Kenneth - 2010
We model the equilibrium price and quantity of risk transfer between firms and financial intermediaries. Value-maximizing firms have downward sloping demands to cede risk, while intermediaries, who assume risk, provide less-than-fully-elastic supply. We show that equilibrium required returns...
Persistent link: https://www.econbiz.de/10013135141