The paper proposes the use of the growth optimal portfolio for pricing and hedging in incomplete markets when there are unobserved factors that have to be filtered. The proposed filtering framework is applicable also in cases when there does not exist an equivalent risk neutral martingale measure. The reduction of the variance of derivative prices for increasing degrees of available information...

Loan commitments represent more than 82 percent of all commercial and industrial loans by domestic banks. This paper develops a valuation model for loan commitments incorporating early exercise, multiple fees, partial exercise and credit risk. The model is analytically tractable and easy to implement. Using a sample of commercial paper backup credit lines from the Dealscan database, we show tha...

This paper analyzes the effects of lower bound for interest rates on distributions inflation and rates. In a New Keynesian model with bound, two equilibria emerge: policy is mostly unconstrained in “target equilibrium,” whereas constrained “liquidity trap equilibrium.” Using options data inflation, we find forecast densities consistent target equilibrium no evidence favor liquidity equilibrium....

Linearity-generating” processes offer a tractable procedure to model cash-flows and pricing kernels in a way that yields exact closed form expressions for bond and stock prices. Prices are simply affine (not exponential-affine) in the factors. The linearity-generating class operates in discrete and continuous time with an arbitrary number of factors. This paper presents novel and general regula...

This paper empirically investigates the impact of macroeconomic uncertainty on the spreads of credit default swaps (CDS). While existing literature acknowledges the importance of the levels of macroeconomic factors in determining CDS spreads, we show that the second moments of these factors—macroeconomic uncertainty—predict CDS spreads even in the presence of traditional macroeconomic factors s...

Stackelberg-like games show a situation where there is a clear advantage in moving …rst. In a thought provoking article, Bagwell (1995) shows that this advantage may not be robust against imperfect observations of the …rst move. We explore these ideas in the context of forward induction in three classic games, namely, the outside option game, the game of burning a dollar before the battle of th...

Tissue factor (TF), apart from activating the extrinsic pathway of the blood coagulation, is a principal regulator of embryonic and oncogenic angiogenesis, inflammation, leukocyte reverse transmigration, and tumor progression. It has become clear that these events are mediated by intracellular signal transduction elicited by TF/factor VIIa (FVIIa) interaction, but the details of this signaling ...

We have selected an HXB2 variant which can replicate in the presence of a neutralizing human serum. Sequencing of the gp120 region of the env gene from the variant and parental viruses identified a single amino acid substitution in the third conserved region of gp120 at residue 375 (AGT-->AAT, Ser-->Asn; designated 375 S/N). The escape mutant was found to be resistant to neutralization by solub...