The book-building procedure for selling initial public offerings to investors hascaptured significant market share from auction alternatives in recent years, despitesignificantly lower costs in both direct fees and initial underpricing when using theauction mechanism. This paper shows that in...

In this article the problem of the American option valuation in a L´vy process setting is analyzed. The perpetual case is first considered. Without possible discontinuities (i.e. with negative jumps inthe call case), known results concerning the currency option value as well as the exercise...

While the debate on how economic agents form expectations and how these expectationsshould be modelled has been key to modern macroeconomics, money illusion has been ananathema to macroeconomists until recently. The rational expectations revolution in the1970's thoroughly banned the study of...

In this paper, we examine formally Keynes' idea that higher order beliefs can drivea wedge between an asset price and its fundamental value based on expected future payoffs. In a dynamic noisy rational expectations model, higher order expectations add an additional term, which we call the higher...

The wealth dynamics of insurance companies strongly depends on the success of their investment strategies, but also on liquidity shocks which occur during unfavorable years, when indemnities to be paid to the clients exceed collected premia. An investment strategy that does not take liquidity...

This empirical study analyzes market and currency risk premia during financial and political crises within the theoretical framework of the international asset pricing model of Adler and Dumas (1983). The econometric specification extends the multivariate GARCH approach of De Santis and Gerard...

The enlargement of the EU will eventually lead to an enlargement of the Euroarea. Since the accession countries are economically very small, the implications for the ECB will be limited to its decision-making structure. I argue that the enlargementrepresents an opportunity for the ECB to adjust...

In this paper we discuss some statistical pitfalls that may occur in modeling cross-dependences with copulas in financial applications. In particular we focus on issues arising in the estimation and the empirical choice of copulas as well as in the design of time-dependent copulas.

We propose a new method for pricing options based on GARCH models with filtered historical innovations. In an incomplete market framework we allow for different distributions of the historical and the pricing return dynamics enhancing the model flexibility to fit market option prices. An...

This pap er intro duces a general framework for market mo dels, namedM arket M o del Approach, through the concept of admissible sets of for-ward swap rates spanning a given tenor structure. We relate this conceptto results in graph theory by showing that a set is admissible if and only ifthe...