This article discuses the identification of Generalised Rational Expectations Models. It is shown that the necessary and sufficient conditions for local identification of the Quasi-Structural Form (Q-SF) derive from the first derivatives of the Non-Linear Instrumental Variables (NLIV) criterion....

This article discuses the identification of Generalised Rational Expectations Models. It is shown that the necessary and sufficient conditions for local identification of the Quasi-Structural Form (Q-SF) derive from the first derivatives of the Non-Linear Instrumental Variables (NLIV) criterion....

In this article we derive minimal conditions to determine the existence of rational expectations solutions obtained using a Generalized Bzout Theorem. We demonstrate that as long as the matrix polynomial derived from the model is regular, then a monic polynomial factor always exists and from...

The Black–Scholes (BS; F. Black & M. Scholes, 1973) option pricing model, and modern parametric option pricing models in general, assume that a single unique price for the underlying instrument exists, and that it is the mid‐ (the average of the ask and the bid) price. In this article the...

Stochastic volatility models such as those of Heston [Rev. Financial Stud., 1993, 6(2), 327-343] and Hull and White [J. Finance, 1987, 42(2), 281-300] are often used to model volatility risk in the pricing and hedging of contingent claims on risky assets. Recent empirical evidence has shown that...

This paper addresses the impact of developments in the credit risk transfer market on the viability of a group of systemically important financial institutions. We propose a bank default risk model, in the vein of the classic Merton-type, which utilizes a multi-equation framework to model...

In this paper we consider an argument, often used in the City and the press, that mergers take place more because of the availability of finance than for strong economic reasons. In particular, we focus on the availability of finance part of this argument and suggest that the financial sector...

This paper examines whether the rational jumpiness/stubbornness hypothesis can explain forecast biases. Using a dataset of professional GDP forecasts for the G7 countries over the period 1989–2010, we find evidence supporting the rational stubbornness hypothesis. Specifically, forecasters...