We analyze a discrete-time analog of Fershtman and Kamien's (1987) continuous-time duopoly model. As price adjustment becomes infinitely fast, Fershtman and Kamien found that their closed-loop equilibrium remains distinct from the static Cournot equilibrium. Yet, in our discrete-time model, the...

We find predictable patterns in stock returns. Stocks whose relative returns are high in a given half-hour interval today exhibit similar outperformance in the same half-hour period on subsequent days. The effect is stronger at the beginning and end of the trading day. These results suggest that...

This paper studies seasonal predictability in the cross section of international stock returns. Stocks that outperform the domestic market in a particular month continue to outperform the domestic market in that same calendar month for up to 5 years. The pattern appears in Canada, Japan, and 12...

Motivated by the literature on investment flows and optimal trading, we examine intraday predictability in the cross-section of stock returns. We find a striking pattern of return continuation at half-hour intervals that are exact multiples of a trading day, and this effect lasts for at least 40...

This paper develops a discrete-time two-factor model of interest rates with analytical solutions for bonds and many interest rate derivatives when the volatility of the short rate follows a GARCH process that can be correlated with the level of the short rate itself. Besides bond and bond...

Proposals to introduce derivatives whose payouts are explicitly linked to the volatility of an underlying asset have been around for some time. In response to these proposals, a few papers have tried to develop valuation formulae for volatility derivatives—derivatives that essentially help...

This paper shows how one can obtain a continuous-time preference-free option pricing model with a path-dependent volatility as the limit of a discrete-time GARCH model. In particular, the continuous-time model is the limit of a discrete-time GARCH model of Heston and Nandi (1997) that allows...

This paper explores the effect of extreme events or big jumps downwards and upwards on the jump‐diffusion option pricing model of Merton (1976). It starts by obtaining a special case of the jump‐diffusion model where there is a positive probability of a big jump downwards. Then, it obtains a...

This paper develops a closed-form option pricing formula for a spot asset whose variance follows a GARCH process. The model allows for correlation between returns of the spot asset and variance and also admits multiple lags in the dynamics of the GARCH process. The single-factor (one-lag)...