Unspanned stochastic volatility (USV) refers to the inability of bonds to replicate volatility-sensitive derivative securities. Affine term structure models require special restrictions on the parameters to exhibit USV. We use a joint Eurodollar futures and options data set to estimate affine...

This paper evaluates the role of various volatility specifications, such as multiple stochastic volatility (SV) factors and jump components, in appropriate modeling of equity return distributions. We use estimation technology that facilitates nonnested model comparisons and use a long data set...

This paper proposes an econometric procedure that allows the estimation of the pricing kernel without either any assumptions about the investors preferences or the use of the consumption data. We propose a model of equity price dynamics that allows for (i) simultaneous consideration of multiple...

The purpose of this paper is to bridge two strands of the literature, one pertaining to the objective or physical measure used to model an underlying asset and the other pertaining to the risk-neutral measure used to price derivatives. We propose a generic procedure using simultaneously the...

We evaluate the statistical and economic differences between affine term-structure models. Despite the voluminous literature on this subject, we have a limited understanding of those structural features of the models that are important in practice. Given that the key distinguishing...

Previous research concludes that options are mispriced based on the high average returns, CAPM alphas, and Sharpe ratios of various put selling strategies. One criticism of these conclusions is that these benchmarks are ill suited to handle the extreme statistical nature of option returns...

Increasing product-market competition is believed to be a driving force behind higher productivity. However, even those critics of globalization who accept this argument claim that there is a hard trade-off because tougher competition comes at the price of reducing work—life balance (WLB)....

Uncertainty appears to jump up after major shocks like the Cuban Missile crisis, the assassination of JFK, the OPEC I oil-price shock, and the 9/11 terrorist attacks. This paper offers a structural framework to analyze the impact of these uncertainty shocks. I build a model with a time-varying...

Support for many R&D and technology policies relies on empirical evidence that R&D ‘spills over’ between firms. But there are two countervailing R&D spillovers: positive effects from technology spillovers and negative effects from business stealing by product market rivals. We develop a...

Recent research suggests that the long term future should be discounted with a declining discount rate. One such line of research, exemplified by Weitzman [Gamma discounting, Amer. Econ. Rev. 91 (2001) 261–271], shows that the certainty equivalent discount rate is declining when future capital...