We investigate portfolio allocations and asset returns within a stochastic OLG economy with risky equity, generation-wide labor income shocks and portfolio nonnegativity constraints. Our model assumes a difference stationary endowment process, a young generation that faces labor income...

We present an arbitrage-free model of the term structure of interest rates where the short rate is subject to rare jumps of predetermined magnitudes. A two dimensional hidden Markov switching process governs the jump probabilities. We apply the model to the targeting process of the Federal...