This chapter introduces the reader to definitions and key properties of stochastic processes that are important in finance. The discussion starts from the description of Brownian motion that describes the idea of a continuous random walk and proceeds to Ito processes that incorporate both trend...

The standard hypothesis concerning the behavior of asset returns states that they follow a random walk in discrete time or a Brownian motion in continuous time. The Brownian motion process is characterized by a quantity, called the Hurst exponent, which is related to some fractal aspects of the...

This paper reviews both theoretical and empirical issues regarding inflation and evaluates the contribution of Kyrtsou and Labys. Analytically it is very difficult to propose a general theory of inflation because as economies evolve over time both new causes of inflation emerge and the...

A speculative bubble is usually defined as the difference between the market value of a security and its fundamental value. Although there are several important theoretical issues surrounding the topic of asset bubbles, the existence of bubbles is inherently an empirical issue that has not been...

This paper focuses on economic and financial asymmetries by addressing methodological issues related to the meaning of economic asymmetries and how such asymmetries arise in markets, general equilibrium modeling and in national and global economies. Historically, the methodology of modeling...

Modern economies have been subjected to a number of shocks during the past several years such as the burst of the Internet bubble, terrorist attacks, corporate scandals, the war in Iraq, the uncertainty about energy prices, and the recent subprime mortgage crisis. In particular, during the last...