This methodological paper presents a class of stochastic processes with appealing properties for theoretical or empirical work in finance and macroeconomics, the "linearity-generating" class. Its key property is that it yields simple exact closed-form expressions for stocks and bonds, with an...

In this paper we investigate the role of self-learning agents in multi-agent models of financial markets. We develop an agent-based simulation model of a financial market and in addition to the agents with fixed strategies used in previous research, we introduce an agent with a self--learning...

"We propose a new model of exchange rates, which yields a theory of the forward premium puzzle. Our explanation combines two ingredients: the possibility of rare economic disasters, and an asset view of the exchange rate. Our model is frictionless, has complete markets, and works for an...