We establish Markovian models in the Heath, Jarrow and Morton paradigm where the credit spreads curves of multiple firms and the term structure of interest rates can be represented analytically at any point in time in terms of a finite number of state variables. The models make no restrictions...

We establish Markovian models in the Heath, Jarrow, and Morton (1992) paradigm that permit an exponential affine representation of riskless and risky bond prices while offering significant flexibility in the choice of volatility structures. Estimating models in our family is typically no more...

This paper considers the pricing of options when there are jumps in the pricing kernel and correlated jumps in asset returns and volatilities. Our model nests Duan’s GARCH option models, where conditional returns are constrained to being normal, as well as mixed jump processes as used in...

In the development of the national economy, the means of production and the means of livelihood must develop in a proper ratio. The development of the production of the means of production must be at a faster rate than that of the means of livelihood. However, if the development of the...

We propose a unified model of limited market integration, asset-price determination, leveraging, and contagion. Investors and firms are located on a circle, and access to markets involves participation costs that increase with distance. Despite the ex-ante symmetry of investors, their strategies...

This paper presents a sentiment-based explanation of the forward premium puzzle. Agents over- or underestimate the growth rate of the economy. All else equal, when perceived domestic growth is higher than perceived foreign growth, the domestic interest rate is higher than the foreign interest...

This paper examines a new set of implications for existing asset pricing models regarding the correlation between returns and consumption growth over both the short run and the long run. The findings suggest that external habit formation models face a challenge in producing two robust facts in...

High rates of government investment in public sector capital forecast high risk premiums both at the aggregate and firm-level. This result is in sharp contrast with the well-documented negative relationship between the private sector investment rate and risk premiums. To explain the empirical...

Uncertainty has qualitatively different implications than risk in studying executive incentives. We study the interplay between profitability uncertainty and moral hazard, where profitability is multiplicative with managerial effort. Investors who face greater uncertainty desire faster learning,...