We explain why central counterparties (CCPs) emerged historically. With standardized contracts, it is optimal to insure counterparty risk by clearing those contracts through a CCP that uses novation and mutualization. As netting is not essential for these services, it does not explain why CCPs...

We consider the properties of three estimation methods for integrated volatility, i.e. realized volatility, the Fourier estimator, and the wavelet estimator, when a typical sample of high-frequency data is observed. We employ several different generating mechanisms for the instantaneous...

A regime dependent VAR model is suggested that allows long memory (fractional integration) in each of the observed regime states as well as the possibility of fractional cointegration. The model is motivated by the dynamics of electricity prices where the transmission of power is subject to...

We discuss the moment condition for the fractional functional central limit theorem (FCLT) for partial sums of x_{t}=Delta^{-d}u_{t}, where d in (-1/2,1/2) is the fractional integration parameter and u_{t} is weakly dependent. The classical condition is existence of qmax(2,(d+1/2)^{-1}) moments...

We consider international negotiations on the level of global pollution, and examine the Lindahl solution which determines the distribution of the pollution permits with unanimous agreement. We show various properties to clarify difficulties to achieve a Pareto efficient allocation as an...

Recent developments allow a nonparametric separation of the continuous sample path component and the jump component of realized volatility. The jump component has very different time series properties than the continuous component, and accounting for this allows improved forecasting of future...

This paper models the Self-Sufficiency Project (SSP), a controlled randomized experiment concerning welfare. The model of household behavior includes stochastic labor market skill, job opportunities, and value of non-labor market time. All the variation within and between treatment groups,...

Government by majority rule voting requires that compromise be attainable, but not too easily. Little of the nation's business could be transacted without an ability on the part of the legislators and political parties to strike bargains, but government by majority rule voting could not...

This paper develops an equilibrium sorting model with utility maximizing researchers who differ in their ability on one side of the market, and on the other side universities and an outside sector. In equilibrium, the top of the ability distribution is allocated to the academic sector, while the...