Existing literature reports an empirical puzzle about the foreign exchange forward premium, the spread between the forward rate and the concurrently-observed spot exchange rate. The premium is often negatively correlated with subsequent changes in the spot rate. This defies economic intuition...

We identify a global risk factor in the cross-section of implied volatility returns in currency markets. A zero-cost strategy that buys forward volatility agreements with downward sloping implied volatility curves and sells those with upward slopes - volatility carry strategy - generates...

This paper analyzes key clauses relevant to valuation in the 1992 ISDA Master Agreement. The paper focuses principally on the section 14 definitions of: Market Quotation and Loss and on ISDA's Basic Set-off Provision which is frequently added via the Master Agreement Schedule. Additional clauses...

We develop a general equilibrium model with intermediaries at the heart of international financial markets. In our model, intermediaries bargain with their customers and extract rents for providing access to foreign claims. The behavior of intermediaries, by tilting state prices, generates an...

We document stylized facts about China's recent exchange rate policy for its currency, the Renminbi (RMB). Our empirical findings suggest that a "two-pillar policy" is in place, aiming to balance RMB index stability and exchange rate flexibility. We then develop a tractable no-arbitrage model of...

This paper develops an international asset-pricing model with defaultable firms and governments that demonstrates how sovereign credit risk in Europe affects US equity market prices. The risk of a sovereign debt crisis is a threat to economic growth that reduces the value of international...

We examine firms' use of currency derivatives in order to differentiate among existing theories of hedging behavior. Firms with greater growth opportunities and tighter financial constraints are more likely to use currency derivatives. This result suggests that firms might use derivatives to...

This study examines short horizon currency futures returns. Expectations hypothesis or risk neutrality assumes an efficient market with no risk premium, and therefore no predictor for futures returns. Using the British, German, Swiss, Japanese, and Canadian currencies as well as pooled currency...

The OTC market, which is dominated by commercial banks, has been alleged to pose a considerable barrier to the growth of exchange traded derivatives. If banks substitute OTC products to their captive clients, transactions costs for hedging could be excessive relative to those of exchange traded...