In this paper we present a Markov-Functional hybrid interest rate/foreign exchange model that allows calibration to given market volatility surfaces in both dimensions simultaneously. This is achieved by extending the approach introduced by Fries and Rott by a functional for the foreign exchange...

This paper highlights a framework for analysing dynamic hedging strategies under transaction costs. First, self-financing portfolio dynamics under transaction costs are modelled as being portfolio affine. An algorithm for computing the moments of the hedging error on a lattice under portfolio...

The appropriate monetary policy response to an asset price bubble remains unclear and is one of the most contentious issues currently facing central banks. Some have argued that monetary policy should be used to contain or reduce an asset price bubble in order to alleviate its adverse...

Reviews the book 'Financial Analysis and Corporate Strategy,' by Mark Grinblatt and Sheridan Titman.

This outstanding collection of articles includes papers presented at the Fields Institute, Toronto, as part of the Thematic Program in Quantitative Finance that took place in the first six months of the year 2010. The scope of the volume in very broad, including papers on foundational issues in...

This paper investigates volatility persistence in Southern and East African stock markets taking into account the rate of volatility decay. Generalised autoregressive conditional heteroscedaticity (GARCH) and GARCH-in-mean (GARCH-M) models are used to estimate volatility persistence and risk...

We test for the presence of a systematic tail risk premium in the cross-section of expected returns by applying a measure on the sensitivity of assets to extreme market downturns, the tail beta. Empirically, historical tail betas help to predict the future performance of stocks under extreme...

Presentation to the 18th Annual Hyman P. Minsky Conference on the State of the U.S. and World Economies—“Meeting the Challenges of the Financial Crisis”

This Economic Letter is adapted from a speech delivered by Janet L. Yellen, president and CEO of the Federal Reserve Bank of San Francisco, to the 18th Annual Hyman P. Minsky Conference on the State of the U.S. and World Economies on April 16, 2009, in New York City.

The dangers of shouting ``fire'' in a crowded theater are well understood, but the dangers of rushing to the exit in the financial markets are more complex. Yet, the two events share several features, and I analyze why people crowd into theaters and trades, why they run, what determines the...