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. This forward premium anomaly has been attributed, by some, to a time-varying risk premium, but theory has yet to produce a...

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...

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 in...

A variety of realistic economic considerations make jump- diffusion models of interest rate dynamics an appealing modeling choice to price interest rate contingent claims. However, exact closed form solutions for bond prices when interest rates follow a mixed jump-diffusion process have proved...

In this paper we describe the cumulative distribution function of excess returns conditional on a broad set of predictors that summarize the state of the economy. We do so by estimating a sequence of conditional logit models over a grid of values of the response variable. Our method uncovers...

Perhaps the most puzzling feature of currency prices is the tendency for high interest rate currencies to appreciate, when the expectations hypothesis suggest the reverse. This forward premium anomaly has been attributed, by some, to a time-varying risk premium, but theory has yet to produce a...

We explore the practitioners methodology of choosing time-dependent parameters to fit a bond model to selected asset prices, and show that it can lead to systematic mispricing of some assets. The Black-Derman-Toy model, for example, is likely to overprice call options on long bonds when interest...

Kurtosis in asset prices and returns has been so widely documented it hardly bears comment. Equally interesting, in our view, is the relatively modest kurtosis in consumption growth and inflation. The question is how to reconcile the two: Is kurtosis in asset prices inherited from macroeconomic...

Mathematical models of bond pricing are used by both academics and Wall Street practitioners, with practitioners introducing time-dependent parameters to fit acirc;not;Sarbitrage-freeacirc;not;? models to select asset prices. We show, in a simple one-factor setting, that the ability of such models...