We put forward a general methodology to price arbitrary payoffs linked to the realization of interest rates, asset prices, or other variables driven by the multivariate Affine Jump-Diffusion process of Duffie and Kan (1996). We attack and solve the basic problem of computing the Arrow-Debreu...

A cash-in-advance model of a monetary economy is used to derive a money-based CAPM (M-CAPM) which allows us to implement tests of asset pricing restrictions without consumption data. A test a la Fama-MacBeth of the model suggests that the money betas have some explanatory power for the...

We explore a variety of models and approaches to bond pricing, including those associated with Vasicek, Cox-Ingersoll-Ross, Ho and Lee, and Heath-Jarrow-Morton, as well as models with jumps, multiple factors, and stochastic volatility. We describe each model in a common theoretical framework and...

We consider the patterns in the predictability of interest rates expectations hypothesis (EH), and attempt to account for them with affine models. We make the following points: (i) Discrepancies in the data from the EH take a particularly simple form with forward rates: as theory suggests, the...

Mathematical models of bond pricing are used by both academics and Wall Street practitioners, with practitioners introducing time-dependent parameters to fit arbitrage-free models to selected asset prices. We show, in a simple one-factor setting, that the ability of such models to reproduce a...

Perhaps the most puzzling feature of currency prices is the tendency for high interest rate currencies to appreciate, when the expectations hypothesis suggests the reverse. Some have attributed this forward premium anomaly to a time-varying risk premium, but theory has been largely unsuccessful...

Mathematical models of bond pricing are used by both academics and Wall Street practitioners, with practitioners introducing time-dependent parameters to fit 'arbitrage-free' models to selected asset prices. The authors show, in a simple one-factor setting, that the ability of such models to...

A cash-in-advance model of a monetary economy is used to derive a money-based capital asset pricing model (M-CAPM), which allows the authors to implement tests of asset pricing restrictions without consumption data. A test as in Eugene F. Fama and James D. Macbeth (1973) of the model suggests...