In a tractable stochastic volatility model, we identify the price of the smile as the price of the unspanned risks traded in SPX option markets. The price of the smile reflects two persistent volatility and skewness risks, which imply a downward sloping term structure of low-frequency variance...

We combine both a mathematical analysis of financial bubbles and a statistical procedure for determining when a given stock is in a bubble, with an analysis of a large data set, in order to compute the empirical distribution of the lifetime of financial bubbles. We find that it follows a...

We show that limited dealer participation in the market, coupled with an informational friction resulting from high frequency trading, can induce demand for liquidity to be upward sloping and strategic complementarities in traders' liquidity consumption decisions: traders demand more liquidity...

We show that limited dealer participation in the market, coupled with an informational friction resulting from high frequency trading, can induce demand for liquidity to be upward sloping and strategic complementarities in traders' liquidity consumption decisions: traders demand more liquidity...

We present a microfounded New Keynesian model that features financial vulnerabilities. Financial intermediaries' occasionally binding value-at-risk constraints give rise to variation in the pricing of risk that generates time-varying risk in the conditional mean and volatility of the output gap....

This paper reviews recent developments in macro and finance on the relationship between financial risk and the real economy. We focus on three specific topics: the term structure of uncertainty, time variation - and specifically the long-term decline - in the variance risk premium, and time...