This paper proposes a continuous-time term-structure model under stochastic differential utility with non-unitary elasticity of intertemporal substitution (EIS, henceforth) in a representative-agent endowment economy with mean-reverting expectations on real output growth and inflation. Using...

We provide a theoretical and numerical framework to study optimal insurance design under asymmetric information. We consider a continuous-time model where neither the efforts nor the outcome of an insured firm are observable to an insurer. The insured may then cause two interconnected...

This paper presents a new approach for modeling an optimal debt contract. It examines a competitive contract design in a continuous-time environment with Markov income shocks and costly verifiable information. It shows that an ex ante optimal contract has the form of a debt contract that...

This paper focuses on the recently developing financial derivatives markets, and examines the usefulness of option prices as an information variable for monetary policy implementation. A set of option prices provides us with information on the entire probability distribution of the future values...

This paper studies a strategic role of debt restructuring under an optimal debt contract. It explores an infinite-horizon costly-monitoring model under Markov income shocks. It shows that, if (1) a borrower's project is expected to be profitable, (2) a lender's outside options are positively...

This paper studies a strategic role of debt restructuring under an optimal debt contract. It explores an infinite-horizon costly-monitoring model under Markov income shocks. It shows that, if (1) a borrower's project is expected to be profitable, (2) a lender's outside options are positively...