This paper develops a simple model of the behavior of foreign firms in the domestic market, in response to exchange rate changes. The Bellman Equations describing the optimal strategy of the firms are explicited and solved for the US market in the 1980s using industry-level data. Exchange rates...

This paper evaluates the equity premium using novel data on the consumption of luxury goods. Specifying household utility as a nonhomothetic function of the consumption of both a luxury good and a basic good, we derive pricing equations and evaluate the risk of holding equity. Household survey...

Different continuous-time models for interest rates coexist in the literature. We test parametric models by comparing their implied parametric density to the same density estimated nonparametrically. We do not replace the continuous-time model by discrete approximations, even though the data are...

This paper examines the estimation of parameters of a discretely sampled Markov process whose continuous-time sample paths are generated by a continuous Brownian term and a stochastic jump term, a realistic setting for many financial asset prices. In discretely sampled data, every change in the...

When a continuous-time diffusion is observed only at discrete dates, in most cases the transition distribution and hence the likelihood function of the observations is not explicitly computable. Using Hermite polynomials, I construct an explicit sequence of closed-form functions and show that it...

This paper evaluates the equity premium using novel data on the consumption of luxury goods. Specifying household utility as a nonhomothetic function of the consumption of both a luxury good and a basic good, we derive pricing equations and evaluate the risk of holding equity. Household survey...