We present an equilibrium model of a moral-hazard economy with one firm and financial markets, where a stock and bonds are traded. We show that it is optimal for the principal to forbid the agent to trade the stock; that the second-best interest rate is lower than the first-best interest rate; and that the second-best equity premium can be higher or lower than the first best equity premium. We ...

The country risk premium predicted by the dynamic real business cycle models in emerging markets is procyclical, whereas it countercyclical data. This paper proposes a model which time-varying emerges endogenously through variant of Bernanke–Gertler–Gilchrist financial accelerator mechanism. estimated can account for volatility and countercyclicality as well other key moments. Time-varying unce...

the current paper examines intertemporal capital asset pricing model in iran’s stock market. dynamic conditional correlation was used to estimate conditional variance and covariance portfolios with market returns. time varying beta is estimated by kalman filter method. based on the obtained results, risk aversion coefficients were between 0.013 and 0.28 and the average was 0.20. significance of...

We evaluate whether the introduction of pessimistic homogeneous beliefs in the frictionless Lucas-Mehra-Prescott model and the Kehoe-Levine-Alvarez-Jermann model with endogenous borrowing constraints, helps explain the equity premium, the risk-free rate and the equity volatility puzzles as well as the short-term momentum and long-term reversal of excess returns. We calibrate the model to U.S. d...

ISK is a characteristic of existence. Attempts to avoid it explain such arrangements as insurance, limited liability firms and diversification of investment portfolios. In recent years, risk aversion and the attendant premium for risk-bearing have been used increasingly to explain a stubborn paradox in the empirical exchange rate literature: the failure of the forward exchange rate to he an unb...

Overview (Re)insurance premium calculation Net premium principle Wang's premium principle applied to excess-of-loss reinsurance setting Extreme value statistics Motivation Extreme value theory (first order framework) Estimating reinsurance premiums Finite sample behavior Simulated data (Fréchet, Burr) Reinsurance premiums (net premium, dual-power transform) X non-negative random variable denoti...

The commercial sex sector bears an importance disproportionate to its size in terms of disease transmission. Epidemiological models suggest that the behavioral response of highactivity core groups like sex workers is critical to the course of HIV and other sexually transmitted infection (STI) epidemics (Shahmanesh et al. 2008). Existing research shows that female sex workers in developing count...

This paper analyzes how model misspecification associated with both interest rate and mortality risk influences hedging decisions of insurance companies. For this purpose, diverse risk management strategies which are risk–minimizing when model risk is ignored come into consideration. The effectiveness of these strategies is investigated by looking at the distribution of the resulting hedging er...

We investigate the relation between contrarian flows, consumption growth, and market risk premium. We construct a contrarian flows measure by summing up the capital flows to stocks that go against the total flow of the aggregate market. We show that the contrarian flows are negatively influenced by the same-quarter consumption growth. During bad times, the majority of investors who are affected...

While many studies document that the market risk premium is predictable and that betas are not constant, the dividend discount model ignores time-varying risk premiums and betas. We develop a model to consistently value cashflows with changing risk-free rates, predictable risk premiums, and conditional betas in the context of a conditional CAPM. Practical valuation is accomplished with an analy...