We discuss how Whittle's (Whittle, 1990) approach to risk-sensitive optimal control problems can be applied in economics and finance. We show how his analysis of the class of Linear Exponential Quadratic Gaussian problems can be extended to accommodate time-discounting, while preserving its...

We formulate a market microstructure model of exchange determination that we employ to investigate the impact of informed trading on exchange rates and on foreign exchange (FX) market conditions. With our formulation, we show how strategic informed agents influence exchange rates via both the...

We extend Kyle’s (1985) analysis of sequential auction markets to the case in which a risk-averse insider possesses private information on several risky assets. The insider trades aggressively and so that the price impact of order flow is symmetric across assets.

We propose a simple structural model of exchange rate determination which draws from the analytical framework recently proposed by Bacchetta and van Wincoop (2003) and allows us to disentangle the liquidity and information effects of order flow on exchange rates. We estimate this model employing...

We formulate a market microstructure model of exchange determination we employ to investigate the impact of foreign exchange intervention on exchange rates and on foreign exchange (FX) market conditions. With our formulation we show i) how foreign exchange intervention influences exchange rates...

We investigate the relation between foreign exchange (FX) order flow and the forward bias. We outline a decomposition of the forward bias according to which a negative correlation between interest rate differentials and order flow creates a time-varying risk premium consistent with that bias....

We study the effects of sterilised intervention operations executed on behalf of the Swiss National Bank (SNB) using tick-by-tick transactions data between 1986 and 1995. We extend the preliminary results obtained by Fischer and Zurlinden (1991) by matching these data with intra-day indicative...