The forward premium anomaly is one of the most robust puzzles in financial economics. We recast the underlying parity relation in terms of cross-country differences between forward interest rates rather than spot interest rates with dramatic results. These forward interest rate differentials...

The forward premium anomaly is one of the most robust puzzles in financial economics. We recast the underlying parity relation in terms of cross-country differences between forward interest rates rather than spot interest rates with dramatic results. These forward interest rate differentials...

This paper investigates the implications of a 2-regime model of the business cycle for term premiums and volatilities in the bond market. The model, which is estimated via maximum likelihood using GDP, consumption and production data, has two key features -- mean growth rates that vary across...

This paper develops a new strategy for dynamically hedging mortgage-backed securities (MBSs). The approach involves estimating the joint distribution of returns on MBSs and T-note futures, conditional on current economic conditions. We show that our approach has a simple intuitive interpretation...

The behavioral finance literature cites the frozen concenated orange juice (FCOJ)futures market as a prominent example of the failure of prices to reflect fundamentals.This paper reexamines the relation between FCOJ futures returns and fundamentals,focusing primarily on temperature. We show that...

This paper presents a general, nonlinear version of existing multifactor models, such as Longstaff and Schwartz (1992). The novel aspect of our approach is that rather than choosing the model parameterization out of quot;thin airquot;, our processes are generated from the data using...

This paper investigates the relation between returns on stock indices and their corresponding futures contracts in order to evaluate potential explanations for the pervasive yet anomalous evidence of positive, short-horizon portfolio autocorrelations. Using a simple theoretical framework, we...

This paper investigates the implications of a 2-regime model of the business cycle forterm premiums and volatilities in the bond market. The model, which is estimated viamaximum likelihood using GDP, consumption and production data, has two key features-mean growth rates that vary across regimes...

This paper provides an analytical solution to the problem of how an institution might optimally manage the market risk of a given exposure, under the assumption that the institution wishes to minimize its Value at Risk (VaR) using options. The solution specifies the VaR-minimizing level of...

The behavioral finance literature cites the frozen concentrated orange juice (FCOJ) futures market as a prominent example of the failure of prices to reflect fundamentals. In contrast, we show that when theory clearly identifies the fundamental, e.g.,temperatures close to or below freezing,...