The U.S. Treasury market is highly intermediated by nonbank principal trading firms (PTFs). Limited capital forces PTFs to end the trading day roughly flat. We construct a continuous time market making model to analyze the trade-off faced by a profit-maximizing firm with overnight inventory...

The U.S. Treasury market is highly intermediated by non-bank principal trading firms (PTFs). Limited capital forces PTFs to end the trading day nearly flat. We construct a continuous time market making model to analyze the trade-off faced by a profit maximizing firm with overnight inventory...

An alternative derivation of the yield curve based on entropy or the loss of information as it is communicated through time is introduced. Given this focus on entropy growth in communication the Shannon entropy will be utilized. Additionally, Shannon entropy's close relationship to the...

The paper examines statistical and economic evidence of out-of-sample bond return predictability for a real-time Bayesian investor who learns about parameters, hidden states, and predictive models over time. We find some statistical evidence using information contained in forward rates. However,...

Since the end of the fixed rates in 1973 and after the EMS sterling dismissal in 1992, the value of the pound has undergone large cyclical fluctuations on average. Of particular interest to policy makers is the understanding of whether such movements are consistent with the lack or not of a...

Since the end of the fixed rates in 1973 and after the EMS sterling dismissal in 1992, the value of the pound has undergone large cyclical fluctuations on average. Of particular interest to policy makers is the understanding of whether such movements are consistent with the lack or not of a...

We propose a model in which sticky expectations concerning shortterm interest rates generate joint predictability patterns in bond and currency markets. Using our calibrated model, we quantify the effect of this channel and find that it largely explains why short rates and yield spreads predict...

We propose a model in which sticky expectations concerning shortterm interest rates generate joint predictability patterns in bond and currency markets. Using our calibrated model, we quantify the effect of this channel and find that it largely explains why short rates and yield spreads predict...

This paper investigates the dynamic linkages in terms of the first and second moments between stock and bond returns, within a wide range of advanced economies, over the different phases of the recent financial crisis. The adopted empirical framework is a bivariate volatility model, where...

In this paper, we study the consistency of bonds and CDS quotes data within a widely accepted credit risk pricing framework, allowing for non-trivial term structures of risk-free interest rates and default intensities. We propose an approach to test this consistency and a procedure to deal with...