Implied option volatility averages about 19% per year, while the unconditional return volatility is only about 16%. The difference, coined the volatility premium, is substantial and translates into large returns for sellers of index options. This paper studies a general equilibrium model based on long-run risk which in an effort to explain the premium. In estimating the model on past data of st...

Relying on a present value model with time-varying expected returns, and incorporating a quite general class of processes to model bubble-like stock price deviations from the long-run equilibrium, we provide empirical evidence on the U.S. log dividend–price ratio over the 1871:1–2001:9 period, as well as for several sub-periods. The application of a momentum threshold autoregressive technique d...

In the US, the bulk of CO2 abatement induced by carbon taxes comes from electric power. This paper incorporates technology detail into the electricity sector of a computable general equilibrium model of the US economy to characterize electric power’s technological margins of adjustment to carbon taxes and to elucidate their general equilibrium effects. Compared to the top-down production functi...

For the game of complete information with multiple principals and multiple common agents discussed by Prat and Rustichini (2003), we construct a general set of equilibrium transfers which implement any efficient outcome as a weakly truthful equilibrium, and the subset of such equilibria that are Pareto optimal for the principals. We provide conditions under which the general set completely char...

In general partition function form games, the recursive core coalition structure may be either coarser or finer than the one that maximizes the social surplus. Moreover, the recursive core structure is typically different from the one predicted by the α-core. We fully implement the recursive core for general games, including non-superadditive games where the grand coalition does not form in equ...

We develop a tractable dynamic general equilibrium model of oligopolistic competition with a continuum of heterogeneous industries. Industries are exposed to aggregate and industry-specific productivity shocks. Firms in each industry set value-maximizing state-contingent markups, taking as given the behavior of all other industries. When consumers are risk-averse, industry markups are countercy...

The aim of this paper is determination of an optimal policy rule for Iranian economy from an Islamic perspective. This study draws on an Islamic instrument known as the Musharakah contract to design a dynamic stochastic general equilibrium model. In this model the interest rate is no longer considered as a monetary policy instrument and the focus is on the impact of economic shocks on the Dynam...

In a two-period pure exchange economy with financial assets, a temporary financial equilibrium is an equilibrium of the current spot and security markets given forecasts of future prices and returns. The temporary equilibrium model can then be interpreted as a Walrasian model where preferences depend on prices. This idenfication implies, among other consequences, the generic determinateness of ...

Definitions of sequential equilibrium and perfect equilibrium are given in games of imperfect recall. Subtleties regarding the definition are discussed. JEL Classification numbers: C70, D81.

The paper focuses on regional trade agreements and economic co-operation and develops a new appropriate approach to study their impact on growth and trade. The approach is based on an endogenous trade-growth theory and novelly specified in an economic integration (expenditure) framework which is the conceptual foundation of regional trade agreements. Importantly, it also appropriately takes int...