We develop a pricing rule for life insurance under stochastic mortality in an incomplete market by assuming that the insurance company requires compensation for its risk in the form of a pre-specified instantaneous Sharpe ratio. Our valuation formula satisfies a number of desirable properties, many of which it shares with the standard deviation premium principle. The major result of the paper i...

Ž . One of the expected benefits of membership of the Exchange Rate Mechanism ERM was a reduction in risk which should lead to a lower cost of capital and foster investment and growth. Using the APT, we investigate the behavior of the equity market risk premium for the London Stock Exchange prior to and during sterling’s membership of the ERM. We find that prior to and during the first year of ...

A canonical two country-two good model with standard preferences does not address three classic international macroeconomic puzzles as well as two well-known asset pricing puzzles. Specifically, under financial autarky, it does not account for the high real exchange rate (RER) volatility relative to consumption volatility (RER volatility puzzle), the negative RER-consumption differentials corre...

This paper offers a refinement and explores a resolution of the excessreturns puzzle in the foreign exchange market. We find that the predictions of the forward premium are not negatively biased throughout the three decades of floating, as commonly believed, but rather are sometimes positively biased, negatively biased, unbiased or possess no predictive content depending on the subperiod examin...

This paper investigates the effectiveness of one of the Federal Reserve’s unconventional monetary policy tools, the term auction facility (TAF). At issue is whether the TAF reduced the spread between the London interbank offered rate (LIBOR) rates and equivalent-term Treasury rates by reducing the liquidity premium embedded in LIBOR rates. This paper suggests that rather than reducing the liqui...

Abstract Trust is an important social capital and informal institution that influences transaction behaviors, especially in the second-hand housing market of China. This study analyzes transactions 17 cities matches birthplaces these traders with CESS2000 to measure degree trust each transaction. Then we use combined dataset examine impact on bargaining power during negotiation process. The emp...

The impact of international trade on wages has received substantial attention in recent decades; but only recently have the specific effects of exporting on wage inequality been investigated in detail. This paper employs the unexpected 1999 Brazilian exchange rate devaluation to identify the effects of exporting on Brazilian manufacturing firm-level wages using employer-employee linked data. We...

To estimate the premium an investor should expect from extended hedge fund lockups, Derman et al. (2009) proposed a three-state discrete-time Markov Chain to model the state of a hedge fund, allowing the state to change randomly among the states “good,” “sick” and “dead” every year. The lockup premium measures the consequence of being stuck with a sick fund. To be more realistic, we propose an ...

We model consumption and dividend growth as di¤erent processes across two latent regimes. We estimate the equilibrium model over 1930-2009 and show that the second regime is associated with recessions, market downturns, higher risk premia, lower consumption and dividend growth, higher volatility of returns and growth rates, and lower market-wide price-dividend ratio. The model performs better a...