This study contributes to the relevant literature by providing an explanation on the reason and the economic conditions under which the spread proves to be such a powerful predictor of economic activity. For over two decades numerous studies have provided evidence on the predictive ability of...

The purpose of this paper is to present an innovative model to evaluate the fair price of a subset of structured products for a hypothetical US structured bond with coupons. Assuming that interest rates are described by the Cox-Ingersoll-Ross process we use an Euler-Maruyama scheme to price...

In this chapter the authors seek to provide a general overview of the international markets for foreign exchange (FX) and FX derivatives as well as the theoretical relationships that tie these markets together with interest rates and central bank policies. The first section provides a brief...

This paper reexamines the main arguments of whether or not monetary policy should respond to asset bubbles. The question of how the central bank should respond to an asset bubble can be reformulated in two ways. First, how does the central bank respond while an asset bubble is growing, and...

During the past few decades, significant theoretical advances in portfolio theory and asset pricing have substantially increased our understanding of how to construct optimal portfolios. These theoretical developments have challenged professional portfolio management to develop appropriate tools...

The Stochastic Discount Factor (SDF) methodology is a general and convenient framework for asset pricing. SDF encapsulates all the modeling uncertainties and its advantage is that we do not require the knowledge of investors' preferences. Suitable specification of SDF is, therefore, critical. It...

In 1994 the Federal Reserve System moved to a more transparent reporting of monetary policy. In this paper we first discuss the evolution of Federal Reserve transparency in U.S. and second we test its effectiveness. We assess the empirical impact of monetary policy transparency on the...

In 1994 the Federal Reserve System moved to a more transparent reporting of monetary policy. In this paper we first discuss the evolution of Federal Reserve transparency in U.S. and second we test its effectiveness. We assess the empirical impact of monetary policy transparency on the...