Fixed income options contain substantial information on the price of interest rate volatility risk. In this paper, we ask if those options will provide information related to other moments of the objective distribution of interest rates. Based on a dynamic term structure model, we find that...

This article analyses the behavior of the Brazilian interest rate, using three measures of rate of return. The series are decomposed into their long run and short run components, as proposed by Vahid and Engle (1993). The results suggest a convergence of the rates to one long run equilibrium. We...

After the World War II, Brazil was one of the fastest growing economies in the world, growing at an average rate of more than 7% from 1950 to 1980. While Brazilian per capita GDP was roughly 15% of the U.S. per capita GDP in 1950, it achieved 30% in 1980. However, since then, Brazil has been...

This paper characterizes ambiguity averse preferences in the absence of the completeness axiom. We axiomatize multiple selves versions of some of the most important examples of complete and ambiguity averse preferences, and characterize when those incomplete preferences are ambiguity averse.

This paper assesses the challenges faced by the inflation-targeting regime in Brazil. The confidence crisis in the future performance of the Brazilian economy and the increase in risk aversion in international markets were responsible for a sudden stop of capital inflows in 2002 that caused a...

This present paper aims at evaluating european and american exchange options and spread options. When the European options are considered, the model developed is based on Monte Carlo Simulations, taking into consideration the joint simulation of the underwriter’s price. The results of this...

This paper studies the Brazilian term structure of interest rates and characterizes how the term premia has changed over time. We employ a Kalman filter approach, which is extended to take into account regime switches and overlapping forecasts errors. Empirical evidence suggests that term premia...

The importance of risk management has been highlighted by the series of disasters related to the application of derivatives and by the common sense in needing to cover these operations with capital allocation. However, not much agreement exists concerning the methods for calculating the capital...

In this article, we estimate and simulate an open rational expectations macro model for the Brazilian economy. Our goal is to identify the features of optimal monetary rules and their consequences for the model's short-term dynamics. We compare the performance of three parametrizations of the...

According to previous results, the main variance reduction techniques performed well during the Monte Carlo simulation of Asian calls (Marins, Santos e Saliby, 2003). Control Variate best performed in terms of the precision of the estimates, whereas Descriptive Sampling was the fastest...