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Gourio, Francois - 2011

Corporate credit spreads are large, volatile, countercyclical, and significantly larger than expected losses, but existing macroeconomic models with financial frictions fail to reproduce these patterns, because they imply small and constant aggregate risk premia. Building on the idea that...

Persistent link: https://www.econbiz.de/10012461632

Credit Spreads as Predictors of Real-Time Economic Activity : A Bayesian Model-Averaging Approach

Faust, Jon - 2011

Employing a large number of real and financial indicators, we use Bayesian Model Averaging (BMA) to forecast real-time measures of economic activity. Importantly, the predictor set includes option-adjusted credit spread indexes based on bond portfolios sorted by maturity and credit risk as...

Persistent link: https://www.econbiz.de/10012461932

Should Derivatives be Privileged in Bankruptcy?

Bolton, Patrick - 2011

Derivative contracts, swaps, and repos enjoy "super-senior" status in bankruptcy: they are exempt from the automatic stay on debt and collateral collection that applies to virtually all other claims. We propose a simple corporate finance model to assess the effect of this exemption on firms'...

Persistent link: https://www.econbiz.de/10012461058

Simple Variance Swaps

Martin, Ian - 2011

the single-name variance swap market to dry up completely. This paper defines and analyzes a simple variance swap, a … relative of the variance swap that in several respects has more desirable properties. First, simple variance swaps are robust …

Persistent link: https://www.econbiz.de/10012461773

An Evaluation of Multi-Factor CIR Models Using LIBOR, Swap Rates, and Cap and Swaption Prices

Jagannathan, Ravi - 2001

We evaluate the classical Cox, Ingersoll and Ross (1985) (CIR) model using data on LIBOR, swap rates and caps and … swaptions. With three factors the CIR model is able to fit the term structure of LIBOR and swap rates rather well. The model is … able to match the hump shaped unconditional term structure of volatility in the LIBOR-swap market. However, statistical …

Persistent link: https://www.econbiz.de/10012470033

Banks and Derivatives

Gorton, Gary - 1995

interest-rate sensitivities of interest rate swap positions of U.S. commercial banks to empirically address the question of … whether swap contracts have increased or decreased systematic risk in the U.S. banking system. We find that the banking system … as a whole faces little net interest-rate risk from swap portfolios …

Persistent link: https://www.econbiz.de/10012473787

Individual Subjective Survival Curves

Gan, Li - 2003

Testing life-cycle models and other economic models of saving and consumption at micro level requires knowledge of individuals' subjective believes of their mortality risk. Previous studies have shown that individual responses on subjective survival probabilities are generally consistent with...

Persistent link: https://www.econbiz.de/10012469223

On the Source and Instability of Probability Weighting

Frydman, Cary; Jin, Lawrence J. - National Bureau of Economic Research - 2023

We propose and experimentally test a new theory of probability distortions in risky choice. The theory is based on a core principle from neuroscience called efficient coding, which states that information is encoded more accurately for those stimuli that the agent expects to encounter more...

Persistent link: https://www.econbiz.de/10014337806

How People Use Statistics

Bordalo, Pedro; Conlon, John; Gennaioli, Nicola; Kwon, … - National Bureau of Economic Research - 2023

We document two new facts about the distributions of answers in famous statistical problems: they are i) multi-modal and ii) unstable with respect to irrelevant changes in the problem. We offer a model in which, when solving a problem, people represent each hypothesis by attending "bottom up" to...

Persistent link: https://www.econbiz.de/10014337863

Is the FDA Too Conservative or Too Aggressive? : A Bayesian Decision Analysis of Clinical Trial Design

Montazerhodjat, Vahid - 2015

Implicit in the drug-approval process is a trade-off between Type I and Type II error. We explore the application of Bayesian decision analysis (BDA) to minimize the expected cost of drug approval, where relative costs are calibrated using U.S. Burden of Disease Study 2010 data. The results for...

Persistent link: https://www.econbiz.de/10012457169