Macroeconomic Foundations of Higher Moments in Bond Yields (2001)
Kurtosis in asset prices and returns has been so widely documented it hardly bears comment. Equally interesting, in our view, is the relatively modest kurtosis in consumption growth and inflation....
Crashes, Contagion, and International Diversification (2001)
When investing in the emerging markets, practitioners worry about the risk of market crashes (and other adverse shocks) and their contagious effects to the neighboring countries. We propose a...
Liquidity and Contagion in Financial Markets (2001)
David Backus, Silverio Foresi, Liuren Wu
This paper presents a model on contagion in financial markets. We use a bank run framework as a mechanism to initiate a crisis and argues that liquidity crunch and imperfect information are the key...
Predictable Changes in Yields and Forward Rates (2000)
Backus, David, Foresi, Silverio, Mozumdar, Abon, Wu, Liuren
We make two contributions to the study of interest rates. The first is to characterize their dynamics in a new way. We estimate forecasting relations based on one-period changes in forward rates,...
Liquidity and Contagion in Financial Markets (1999)
Backus, David, Foresi, Silverio, Wu, Liuren
This paper presents a model on contagion in financial markets. We use a bank run framwork as a mechanism to initiate a crisis and argues that liquidity crunch and imperfect information are the key...
Affine Models of Currency Pricing: Accounting for the Forward Premium Anomaly (1999)
One of the most puzzling features of currency prices is the tendency for high interest rate currencies to appreciate. Some have attributed this forward premium anomaly to a time-varying risk premium,...
Accounting for Biases in Black-Scholes (1999)
David Backus, Silverio Foresi, Kai Li
Prices of currency options commonly differ from the Black-Scholes formula along two dimensions: implied volatilities vary by strike price (volatility smiles) and maturity (implied volatility of...
Discrete-Time Models of Bond Pricing (1999)
We explore a variety of models and approaches to bond pricing, including those associated with Vasicek, Cox-Ingersoll-Ross, Ho and Lee, and Heath-Jarrow-Morton, as well as models with jumps, multiple...
Arbitrage Opportunities in Arbitrage-Free Models of Bond Pricing (1999)
Mathematical models of bond pricing are used by both academics and Wall Street practitioners, with practitioners introducing time-dependent parameters to fit "arbitrage-free" models to selected asset...
Of Smiles and Smirks: A Term-Structure Perspective (1998)
Sanjiv Ranjan Das, Rangarajan K. Sundaram, Menachem Brenner, Stephen Brown, George Chacko, Young Ho Eom, ...
An extensive empirical literature in finance has documented not only the presence of anamolies in the Black-Scholes model, but also the "term-structures" of these anamolies (for instance, the...
Discrete-Time Models of Bond Pricing (1998)
We explore a variety of models and approaches to bond pricing, including those associated with Vasicek, Cox-Ingersoll-Ross, Ho and Lee, and Heath-Jarrow-Morton, as well as models with jumps, multiple...
Affine Models of Currency Pricing: Accounting for the Forward Premium Anomaly (1998)
One of the most puzzling features of currency prices is the tendency for high interest rate currencies to appreciate. Some have attributed this forward premium anomaly to a time-varying risk premium,...
Accounting for Biases in Black-Scholes (1998)
David Backus, Silverio Foresi, Kai Li
Currency options commonly differ from the Black-Scholes formula along two dimensions: implied volatilities vary by strike price (volatility smiles) and maturity (implied volatility of at-the-money...
Accounting for Biases in Black-Scholes (1997)
Backus, David, Foresi, Silverio, Li, Kai, Wu, Liuren
Prices of currency options commonly deffer from the Black-Scholes formula along two dimensions: implied volatilities vary by strike price (volatility smiles) and maturity (implied volatility of...
Estimating the Cost of U.S. Indexed Bonds (1997)
Ro Penati, Silverio Foresi, Alessandro Penati, George Pennacchi
: This paper presents an equilibrium bond pricing model driven by two stochastic factors: the real interest rate and the expected rate of in ation. The model s parameters are estimated using a...
Macroeconomic Foundations of Higher Moments in Bond Yields (1997)
David, Backus, Foresi, Silverio, Wu, Liuren
Kurtosis in asset prices and returns has been so widely documented it hardly bears comment. Equally interesting, in our view, is the relatively modest kurtosis in consumption growth and inflation....
Macroeconomic Foundations of Higher Moments in Bond Yields (1997)
David, Backus, Foresi, Silverio, Wu, Liuren
Kurtosis in asset prices and returns has been so widely documented it hardly bears comment. Equally interesting, in our view, is the relatively modest kurtosis in consumption growth and inflation....
"Price Barriers" and the Dynamics of Asset Prices in Equilibrium (1996)
Balduzzi, Pierluigi, Foresi, Silverio, Hait, David J.
In a variety of realistic scenarios, some investors trade infrequently rather than continuously, basing their buy or sell decisions on current price levels. A “price barrier” is a price level at...
"Price Barriers" and the Dynamics of Asset Prices in Equilibrium (1996)
Balduzzi, Pierluigi, Foresi, Silverio, Hait, David J.
In a variety of realistic scenarios, some investors trade infrequently rather than continuously, basing their buy or sell decisions on current price levels. A “price barrier” is a price level at...
The Central Tendency: A Second Factor in Bond Yields (1996)
Balduzzi, Pierluigi, Das, Sanjiv Ranjan, Foresi, Silverio
We assume that the instantaneous riskless rate reverts toward a central tendency which, in turn, is changing stochastically over time. As a result, current short-term rates are not sufficient to...
The Central Tendency: A Second Factor in Bond Yields (1996)
Balduzzi, Pierluigi, Das, Sanjiv Ranjan, Foresi, Silverio
We assume that the instantaneous riskless rate reverts toward a central tendency which, in turn, is changing stochastically over time. As a result, current short-term rates are not sufficient to...
Arbitrage Opportunities in Arbitrage-Free Models of Bond Pricing (1996)
David, Backus, Foresi, Silverio, Zin, Stanley
Mathematical models of bond pricing are used by both academics and Wall Street practitioners, with practitioners introducing time-dependent parameters to fit “arbitrage-free” models to select...
Affine Models of Currency Pricing (1996)
David, Backus, Foresi, Silverio, Telmer, Chris
Perhaps the most puzzling feature of currency prices is the tendency for high interest rate currencies to appreciate when the expectations hypothesis suggests the reverse. Some have attributed this...
Arbitrage Opportunities in Arbitrage-Free Models of Bond Pricing (1996)
David, Backus, Foresi, Silverio, Zin, Stanley
Mathematical models of bond pricing are used by both academics and Wall Street practitioners, with practitioners introducing time-dependent parameters to fit “arbitrage-free” models to select...
Affine Models of Currency Pricing (1996)
David, Backus, Foresi, Silverio, Telmer, Chris
Perhaps the most puzzling feature of currency prices is the tendency for high interest rate currencies to appreciate when the expectations hypothesis suggests the reverse. Some have attributed this...
The Central Tendency: A Second Factor in Bond Yields (1995)
Balduzzi, Pierluigi, Das, Sanjiv Ranjan, Foresi, Silverio
We assume that the instantaneous riskless rate reverts towards a central tendency which, in turn, is changing stochastically over time, and we derive a model of the term structure of interest rates....
The Central Tendency: A Second Factor in Bond Yields (1995)
Balduzzi, Pierluigi, Das, Sanjiv Ranjan, Foresi, Silverio
We assume that the instantaneous riskless rate reverts towards a central tendency which, in turn, is changing stochastically over time, and we derive a model of the term structure of interest rates....
The Central Tendency: A Second Factor in Bond Yields (1995)
Balduzzi, Pierluigi, Das, Sanjiv Ranjan, Foresi, Silverio
We assume the short-term rate to revert towards a central tendency which in, turn, is stochastically changing over time. We impose minimal restrictions on the joint behavior of the short-term rate...
Asset Price Dynamics and Infrequent Trades (1995)
Balduzzi, Pierluigi, Bertola, Giuseppe, Foresi, Silverio
We model an economy where stocks and bonds (consols) are traded by two types of agents: speculators, expected utility maximizers always present in the market, and infrequent traders, whose trading...
The Central Tendency: A Second Factor in Bond Yields (1995)
Balduzzi, Pierluigi, Das, Sanjiv Ranjan, Foresi, Silverio
We assume the short-term rate to revert towards a central tendency which in, turn, is stochastically changing over time. We impose minimal restrictions on the joint behavior of the short-term rate...
Asset Price Dynamics and Infrequent Trades (1995)
Balduzzi, Pierluigi, Bertola, Giuseppe, Foresi, Silverio
We model an economy where stocks and bonds (consols) are traded by two types of agents: speculators, expected utility maximizers always present in the market, and infrequent traders, whose trading...
Interest Rate Targeting and the Dynamics of Short-Term Rates (1994)
Balduzzi, Pierluigi, Bertola, Giuseppe, Foresi, Silverio
We explore the link between the overnight fed funds rate, which is actively targeted by the Federal Reserve, and longer-maturity term fed funds rates. We develop a term-structure model which...
Interest Rate Targeting and the Dynamics of Short-Term Rates (1994)
Balduzzi, Pierluigi, Bertola, Giuseppe, Foresi, Silverio
We explore the link between the overnight fed funds rate, which is actively targeted by the Federal Reserve, and longer-maturity term fed funds rates. We develop a term-structure model which...
The Conditional Distribution of Excess Returns: An Empirical Analysis (1994)
Foresi, Silverio, Peracchi, Franco
In this paper we describe the cumulative distribution function of excess returns conditional on a broad set of predictors that summarize the state of the economy. We do so by estimating a sequence of...
The Conditional Distribution of Excess Returns: An Empirical Analysis (1994)
Foresi, Silverio, Peracchi, Franco
In this paper we describe the cumulative distribution function of excess returns conditional on a broad set of predictors that summarize the state of the economy. We do so by estimating a sequence of...
Arbitrage Opportunities in Arbitrage-Free Models of Bond Pricing (1994)
Backus, David K., Foresi, Silverio, Zin, Stanley E.
We explore the practitioners’ methodology of choosing time-dependent parameters to fit a bond model to selected asset prices, and show that it can lead to systematic mispricing of some assets. The...
Arbitrage Opportunities in Arbitrage-Free Models of Bond Pricing (1994)
Backus, David K., Foresi, Silverio, Zin, Stanley E.
We explore the practitioners’ methodology of choosing time-dependent parameters to fit a bond model to selected asset prices, and show that it can lead to systematic mispricing of some assets. The...
The Simple Analytics of Assets' Values and Infrequent Policy Changes (1994)
Balduzzi, Pierluigi, Corsetti, Giancarlo, Foresi, Silverio
This paper studies the effects on financial markets of an anticipated fiscal stabilization policy in a stochastic environment. Stabilization is defined as a discrete change in the budget process...
The Simple Analytics of Assets' Values and Infrequent Policy Changes (1994)
Balduzzi, Pierluigi, Corsetti, Giancarlo, Foresi, Silverio
This paper studies the effects on financial markets of an anticipated fiscal stabilization policy in a stochastic environment. Stabilization is defined as a discrete change in the budget process...
The Forward Premium Anomaly: Three Examples in Search of a Solution (1994)
Backus, David K., Foresi, Silverio, Telmer, Chris I.
Perhaps the most puzzling feature of currency prices is the tendency for high interest rate currencies to appreciate, when the expectations hypothesis suggest the reverse. This forward premium...
The Forward Premium Anomaly: Three Examples in Search of a Solution (1994)
Backus, David K., Foresi, Silverio, Telmer, Chris I.
Perhaps the most puzzling feature of currency prices is the tendency for high interest rate currencies to appreciate, when the expectations hypothesis suggest the reverse. This forward premium...
Money, Transactions, and Portfolio Choice (1994)
Balduzzi, Pierluigi, Foresi, Silverio
Real money balances are held separately for consumption and portfolio reasons. When real balances are a state variable in the investor’s optimization problem, there is a specific inflation-hedging...
Money, Transactions, and Portfolio Choice (1994)
Balduzzi, Pierluigi, Foresi, Silverio
Real money balances are held separately for consumption and portfolio reasons. When real balances are a state variable in the investor’s optimization problem, there is a specific inflation-hedging...
A Model of Target Changes and the Term Structure of Interest Rates
Pierluigi Balduzzi, Giuseppe Bertola, Silverio Foresi
We explore the effects of official targeting policy on the term-structure of nominal interest rates, adapting relevant insights from theoretical work on "peso problems" to account for realistic...
Non-linearities in Asset Prices and Infrequent Noise Trading
Pierluigi Balduzzi, Giuseppe Bertola, Silverio Foresi
We model a two-asset economy populated by `speculators', who are always present in the market, and `noise traders', who infrequently reallocate their portfolios in a discrete fashion. Noise traders'...
Asset Price Dynamics and Infrequent Feedback Trades.
Balduzzi, Pierluigi, Bertola, Giuseppe, Foresi, Silverio
This article combines the continuous arrival of information with the infrequency of trades and investigates the effects on asset price dynamics of positive- and negative-feedback trading....
Does Money Explain Asset Returns? Theory and Empirical Analysis.
Chan, K C, Foresi, Silverio, Lang, Larry H P
A cash-in-advance model of a monetary economy is used to derive a money-based capital asset pricing model (M-CAPM), which allows the authors to implement tests of asset pricing restrictions without...
Arbitrage Opportunities in Arbitrage-Free Models of Bond Pricing.
Backus, David, Foresi, Silverio, Zin, Stanley
Mathematical models of bond pricing are used by both academics and Wall Street practitioners, with practitioners introducing time-dependent parameters to fit 'arbitrage-free' models to selected asset...
Accouting for Biases in Black-Scholes
David Backus, Silverio Foresi, Liuren Wu
Prices of currency options commonly differ from the Black-Scholes formula along two dimensions: implied volatilities vary by strike price (volatility smiles) and maturity (implied volatility of...
Contagion in Financial Markets
David Backus, Silverio Foresi, Liuren Wu
This paper presents a model on contagion in nancial markets. We use a bank run framework as a mechanism to initiate a crisis and argues that liquidity crunch and imperfect information are the key...
Estimating the cost of U.S. indexed bonds
Silverio Foresi, Alessandro Penati, George Pennacchi
A presentation of an equilibrium bond-pricing model driven by two stochastic factors: the real interest rate and the expected rate of inflation. The models parameters are estimated using a...
Interpreting the Forward Premium Anomaly.
David K. Backus, Silverio Foresi, Chris I. Telmer
One of the central issues in international finance concerns the forward premium anomaly: changes in spot exchange rates are inversely related to the premium of forward rates over spot rates. The...
The Central Tendency: A Second Factor In Bond Yields
Pierluigi Balduzzi, Sanjiv Ranjan Das, Silverio Foresi
We assume that the instantaneous riskless rate reverts toward a central tendency which, in turn, is changing stochastically over time. As a result, current short-term rates are not sufficient to...
Affine Models of Currency Pricing
David Backus, Silverio Foresi, Chris Telmer
Perhaps the most puzzling feature of currency prices is the tendency for high interest rate currencies to appreciate, when the expectations hypothesis suggests the reverse. Some have attributed this...
Arbitrage Opportunities in Arbitrage-Free Models of Bond Pricing
David Backus, Silverio Foresi, Stanley Zin
Mathematical models of bond pricing are used by both academics and Wall Street practitioners, with practitioners introducing time-dependent parameters to fit arbitrage-free models to selected asset...
Interest Rate Targeting and the Dynamics of Short-Term Rates
Pierluigi Balduzzi, Giuseppe Bertola, Silverio Foresi, Leora Klapper
We find that in 1989-1996, when U.S. monetary policy tightly targeted overnight fed funds rates, the volatility and persistence of spreads between target and term fed funds levels were larger for...
The Central Tendency: A Second Factor in Bond Yields
Pierluigi Balduzzi, Sanjiv Ranjan Das, Silverio Foresi
We assume that the instantaneous riskless rate reverts towards a central tendency which in turn, is changing stochastically over time. As a result, current short-term rates are not" sufficient to...
Predictable Changes in Yields and Forward Rates
David Backus, Silverio Foresi, Abon Mozumdar, Liuren Wu
We consider the patterns in the predictability of interest rates expectations hypothesis (EH), and attempt to account for them with affine models. We make the following points: (i) Discrepancies in...
Discrete-Time Models of Bond Pricing
David Backus, Silverio Foresi, Chris Telmer
We explore a variety of models and approaches to bond pricing, including those associated with Vasicek, Cox-Ingersoll-Ross, Ho and Lee, and Heath-Jarrow-Morton, as well as models with jumps, multiple...