A derivative asset is a security whose payoff is entirely determined by the prices of one or more underlying securities. Call and put options on stocks are simple examples. Since 1973, when Black and Scholes published their path-breaking option price formula, a rapidly growing literature has...

Many practitioners point out that the speculative profits of institutional traders are eroded by the difficulty in gauging the price impact of their trades. In this paper, we develop a model of strategic trading where speculators face such a dilemma because of incomplete information about...

Several authors have derived closed-form option prices in models where the underlying financial variable follows a diffusion process with the following two charactieristics: (i) the process has natural upper and lower boundaries; (ii) its diffusion coefficient is quadratic in the current value...

This paper presents a dynamic theory of housing market fluctuations. It develops a life-cycle model where households are heterogeneous with respect to income and preferences, and mortgage lending is restricted by a down-payment requirement. the market interaction of young credit-constrained...

This paper presents a first step towards a new theory of housing market fluctuations. We develop a life-cycle model where agents face credit constraints and their housing consumption is restricted to a discrete set of possibilities. The market interaction of young credit constrained agents...

The UK experienced a major residential real estate boom-bust cycle from the mid-Eighties to the mid-Nineties, accompanied by unprecedented shifts in the owner occupancy rate of young households. Previous empirical analyses have pointed toward income changes and financial deregulation as the...

We analyze a two-player game of strategic experimentation with two-armed bandits. Each player has to decide in continuous time whether to use a safe arm with a known payoff or a risky arm whose likelihood of delivering payoffs is initially unknown. The quality of the risky arms is perfectly...

We analyze continuous-time games of strategic experimentation with two-armedbandits when there is no discounting. We show that for all specifications of priorbeliefs and payoff-generating processes that satisfy some separability condition, the unique symmetric Markov perfect equilibrium can be...