We consider a pure exchange economy consisting of a single risky asset whose dividend drift rate is modelled by an Ornstein-Uhlenbeck process, and a representative agent with power-utility who, in equilibrium, consumes the dividend paid by the risky asset. Endogenously determined interest rates...

We construct an intertemporal equilibrium with two agents with heterogeneous beliefs. Heterogeneity of beliefs induces volatility of the interest rate. We study the effect of financial innovation on interest rate volatility and conclude that, in a setting of asymmetric beliefs, introducing the...

We develop a model of exchange rate determination for a small open economy under a target zone regime. The driving force of the model is an exogenous stochastic capital flow that is invested in a domestic securities market. Equilibrium exchange rates are the result of equilibrium in both the...

We examine the extent to which an investor's preferences and beliefs are uniquely determined from knowledge of the equilibrium prices and of his/her consumption strategy. More precisely, we assume that the investor's preferences admit an expected utility representation, but with subjective...

We postulate that the growing participation of institutional investors in capital markets along with their particular objective function might help to explain the home equity bias puzzle. We model an institutional investor as a risk averse investor that has access to international financial...

We consider the problem of a Central Bank that has some exchange rate goals. We compare "direct" Intervention through sale/purchase of reserves in the currency market with an alternative strategy of intervention with options. The intervention affects the currency markets because as a result of...