Zin, Stanley E.Overview
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Most widely held works by
Stanley E Zin
Arbitrage opportunities in arbitragefree models of bond pricing
by David Backus
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14 editions published between 1994 and 1996 in English and held by 93 WorldCat member libraries worldwide Abstract: Mathematical models of bond pricing are used by both academics and Wall Street practitioners, with practitioners introducing timedependent parameters to fit arbitragefree models to selected asset prices. We show, in a simple onefactor setting, that the ability of such models to reproduce a subset of security prices need not extend to statecontingent claims more generally. The popular BlackDermanToy model, for example, overprices call options on long bonds relative to those on short bonds when interest rates exhibit mean reversion. We argue, more generally, that the additional parameters of arbitragefree models should be complemented by close attention to fundamentals, which might include mean reversion, multiple factors, stochastic volatility, and/or nonnormal interest rate distributions
Reverse engineering the yield curve
by David Backus
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11 editions published in 1994 in English and held by 78 WorldCat member libraries worldwide Abstract: Prices of riskfree bonds in any arbitragefree environment are governed by a pricing kernel: given a kernel, we can compute prices of bonds of any maturity we like. We use observed prices of multiperiod bonds to estimate, in a loglinear theoretical setting, the pricing kernel that gave rise to them. The highorder dynamics of our estimated kernel help to explain why firstorder, onefactor models of the term structure have had difficulty reconciling the shape of the yield curve with the persistence of the short rate. We use the estimated kernel to provide a new perspective on HansenJagannathan bounds, the price of risk, and the pricing of bond options and futures
Competition and intervention in sovereign debt markets
by Bernhard Paasche
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11 editions published in 2001 in English and held by 74 WorldCat member libraries worldwide Abstract: We investigate markets for defaultable sovereign debt in which even though there are many identical lenders and symmetric information (including no hidden actions), perfect competition does not obtain. When a private lender allows a sovereign country to increase its level of indebtedness, that lender implicitly imposes a default externality on others who have lent to that sovereign. That is, in the case where the borrower would be able to pay back the first loan in the absence of a second loan, the borrower may have a strong incentive to take both loans and default on both loans. When a lender has no control over the actions of other lenders, they must anticipate this behavior and devise a lending strategy that is consistent with the strategies not only of the sovereign borrower, but also of other lenders. We develop a model of this strategic lending behavior in the presence of default, and show that even though there are many competing lenders, the perfectly competitive outcome does not necessarily obtain. Moreover, the equilibrium can result in monopolylike outcomes in prices and quantities. We also study the consequences of intervention in these markets by a seemingly benevolent international financial institution, and find that these interventions, though wellintentioned, can in some cases be welfare reducing for sovereign countries and welfare improving for private lenders
Model uncertainty and liquidity
by Bryan R Routledge
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10 editions published in 2001 in English and held by 69 WorldCat member libraries worldwide Abstract: Extreme market outcomes are often followed by a lack of liquidity and a lack of trade. This market collapse seems particularly acute for markets where traders rely heavily on a specific empirical model such as in derivative markets. Asset pricing and trading, in these cases, are intrinsically model dependent. Moreover, the observed behavior of traders and institutions that places a large emphasis on 'worstcase scenarios'' through the use of 'stress testing'' and 'valueatrisk'' seems different than Savage rationality (expected utility) would suggest. In this paper we capture modeluncertainty explicitly using an EpsteinWang (1994) uncertaintyaverse utility function with an ambiguous underlying assetreturns distribution. To explore the connection of uncertainty with liquidity, we specify a simple market where a monopolist financial intermediary makes a market for a propriety derivative security. The marketmaker chooses bid and ask prices for the derivative, then, conditional on trade in this market, chooses an optimal portfolio and consumption. We explore how uncertainty can increase the bidask spread and, hence, reduces liquidity. In addition, 'hedge portfolios'' for the marketmaker, an important component to understanding spreads, can look very different from those implied by a model without Knightian uncertainty. Our infinitehorizon example produces short, dramatic decreases in liquidity even though the underlying environment is stationary
Generalized disappointment aversion and asset prices
by Bryan R Routledge
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9 editions published in 2003 in English and held by 64 WorldCat member libraries worldwide "We provide an axiomatic model of preferences over atemporal risks that generalizes Gul (1991) A Theory of Disappointment Aversion' by allowing risk aversion to be first order' at locations in the state space that do not correspond to certainty. Since the lotteries being valued by an agent in an assetpricing context are not typically local to certainty, our generalization, when embedded in a dynamic recursive utility model, has important quantitative implications for financial markets. We show that the stateprice process, or assetpricing kernel, in a Lucastree economy in which the representative agent has generalized disappointment aversion preferences is consistent with the pricing kernel that resolves the equitypremium puzzle. We also demonstrate that a small amount of conditional heteroskedasticity in the endowmentgrowth process is necessary to generate these favorable results. In addition, we show that risk aversion in our model can be both statedependent and countercyclical, which empirical research has demonstrated is necessary for explaining observed assetpricing behavior"NBER website
Taylor rules, McCallum rules and the term structure of interest rates
by Michael F Gallmeyer
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8 editions published in 2005 in English and held by 62 WorldCat member libraries worldwide "Recent empirical research shows that a reasonable characterization of federalfundsrate targeting behavior is that the change in the target rate depends on the maturity structure of interest rates and exhibits little dependence on lagged target rates. See, for example, Cochrane and Piazzesi (2002). The result echoes the policy rule used by McCallum (1994) to rationalize the empirical failure of the 'expectations hypothesis' applied to the term structure of interest rates. That is, rather than forward rates acting as unbiased predictors of future short rates, the historical evidence suggests that the correlation between forward rates and future short rates is surprisingly low. McCallum showed that a desire by the monetary authority to adjust short rates in response to exogenous shocks to the term premiums imbedded in long rates (i.e. "yieldcurve smoothing"), along with a desire for smoothing interest rates across time, can generate term structures that account for the puzzling regression results of Fama and Bliss (1987). McCallum also clearly pointed out that this reducedform approach to the policy rule, although naturally forward looking, needed to be studied further in the context of other response functions such as the now standard Taylor (1993) rule. We explore both the robustness of McCallum's result to endogenous models of the term premium and also its connections to the Taylor Rule. We model the term premium endogenously using two different models in the class of affine term structure models studied in Duffie and Kan (1996): a stochastic volatility model and a stochastic priceof risk model. We then solve for equilibrium term structures in environments in which interest rate targeting follows a rule such as the one suggested by McCallum (i.e., the "McCallum Rule"). We demonstrate that McCallum's original result generalizes in a natural way to this broader class of models. To understand the connection to the Taylor Rule, we then consider two structural macroeconomic models which have reduced forms that correspond to the two affine models and provide a macroeconomic interpretation of abstract state variables (as in Ang and Piazzesi (2003)). Moreover, such structural models allow us to interpret the parameters of the termstructure model in terms of the parameters governing preferences, technologies, and policy rules. We show how a monetary policy rule will manifest itself in the equilibrium assetpricing kernel and, hence, the equilibrium term structure. We then show how this policy can be implemented with an interestrate targeting rule. This provides us with a set of restrictions under which the Taylor and McCallum Rules are equivalent in the sense if implementing the same monetary policy. We conclude with some numerical examples that explore the quantitative link between these two models of monetary policy"National Bureau of Economic Research web site
Exotic preferences for macroeconomists
by David Backus
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Book
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3 editions published in 2004 in English and held by 59 WorldCat member libraries worldwide "We provide a user's guide to exotic' preferences: nonlinear time aggregators, departures from expected utility, preferences over time with known and unknown probabilities, risksensitive and robust control, hyperbolic' discounting, and preferences over sets (temptations'). We apply each to a number of classic problems in macroeconomics and finance, including consumption and saving, portfolio choice, asset pricing, and Pareto optimal allocations"National Bureau of Economic Research web site
Sources of entropy in representative agent models
by David Backus
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10 editions published in 2011 in English and held by 45 WorldCat member libraries worldwide We propose two metrics for asset pricing models and apply them to representative agent models with recursive preferences, habits, and jumps. The metrics describe the pricing kernel's dispersion (the entropy of the title) and dynamics (time dependence, a measure of how entropy varies over different time horizons). We show how each model generates entropy and time dependence and compare their magnitudes to estimates derived from asset returns. This exercise  and transparent loglinear approximations  clarifies the mechanisms underlying these models. It also reveals, in some cases, tension between entropy, which should be large enough to account for observed excess returns, and time dependence, which should be small enough to account for mean yield spreads
Longmemory inflation uncertainty evidence from the term structure of interest rates
by David Backus
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Book
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6 editions published between 1992 and 1993 in English and held by 39 WorldCat member libraries worldwide We use a fractional difference model to reconcile two features of yields on US government bonds with modem asset pricing theory: the persistence of the short rate and variability of the long end of the yield curve. We suggest that this process might arise from the response of the heterogeneous agents to the changes in monetary policy
Identifying Taylor rules in macrofinance models
by David Backus
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7 editions published in 2013 in English and held by 36 WorldCat member libraries worldwide Identification problems arise naturally in forwardlooking models when agents observe more than economists. We illustrate the problem in several macrofinance models with Taylor rules. When the shock to the rule is observed by agents but not economists, identification of the rule's parameters requires restrictions on the form of the shock. We show how such restrictions work when we observe the state directly, indirectly, or infer it from observables
The independence axiom and asset returns
by Larry G Epstein
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5 editions published in 1991 in English and held by 36 WorldCat member libraries worldwide This paper integrates models of atemporal risk preference that relax the independence axiom into a recursive intertemporal assetpricing framework. The resulting models are amenable to empirical analysis using market data and standard Euler equation methods. We are thereby able to provide the first nonlaboratorybased evidence regarding the usefulness of several new theories of risk preference for addressing standard problems in dynamic economics. Using both stock and bond returns data, we find that a model incorporating risk preferences that exhibit firstorder risk aversion accounts for significantly more of the mean and autocorrelation properties of the data than models that exhibit only secondorder risk aversion. Unlike the latter class of models which require parameter estimates that are outside of the admissible parameter space, e.g., negative rates of time preference, the model with firstorder risk aversion generates point estimates that are economically meaningful. We also examine the relationship between firstorder risk aversion and models that employ exogenous stochastic switching processes for consumption growth
'First order' risk aversion and the equity premium puzzle
by Larry G Epstein
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2 editions published between 1989 and 1990 in English and held by 8 WorldCat member libraries worldwide
Aggregate consumption behaviour in a life cycle model with nonadditive recursive utility
by Stanley E Zin
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Book
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4 editions published in 1987 in English and held by 8 WorldCat member libraries worldwide
Testing a government's presentvalue borrowing constraint
by Gregor W Smith
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3 editions published in 1987 in English and Undetermined and held by 8 WorldCat member libraries worldwide
Substitution, risk aversion and the temporal behaviour of consumption and asset returns
by Larry G Epstein
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2 editions published in 1987 in English and held by 7 WorldCat member libraries worldwide
CarnegieRochester Conference series on Public Policy : November 19  20, 2004 ; in honor of Bennett T. McCallum
by 11, Pittsburgh, Pa.> Carnegie Rochester Conference on Public Policy. <2004
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1 edition published in 2005 in English and held by 7 WorldCat member libraries worldwide
Intertemporal substitution, risk and the time series behaviour of consumption and asset returns
by Stanley E Zin
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Book
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3 editions published in 1987 in English and held by 7 WorldCat member libraries worldwide
Risk premiums in the term structure : evidence from artificial economies
by David Backus
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Book
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3 editions published in 1986 in English and held by 5 WorldCat member libraries worldwide
Substitution, risk aversion and the temporal behaviour of consumption and asset returns
by Larry G Epstein
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Book
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1 edition published in 1987 in English and held by 5 WorldCat member libraries worldwide
Arbitragefree bond pricing with dynamic macroeconomic models
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4 editions published in 2007 in English and held by 5 WorldCat member libraries worldwide We examine the relationship between monetarypolicyinduced changes in short interest rates and yields on longmaturity defaultfree bonds. The volatility of the long end of the term structure and its relationship with monetary policy are puzzling from the perspective of simple structural macroeconomic models. We explore whether richer models of risk premiums, specifically stochastic volatility models combined with EpsteinZin recursive utility, can account for such patterns. We study the properties of the yield curve when inflation is an exogenous process and compare this to the yield curve when inflation is endogenous and determined through an interestrate/Taylor rule. When inflation is exogenous, it is difficult to match the shape of the historical average yield curve. Capturing its upward slope is especially difficult as the nominal pricing kernel with exogenous inflation does not exhibit any negative autocorrelation  a necessary condition for an upward sloping yield curve as shown in Backus and Zin (1994). Endogenizing inflation provides a substantially better fit of the historical yield curve as the Taylor rule provides additional flexibility in introducing negative autocorrelation into the nominal pricing kernel. Additionally, endogenous inflation provides for a flatter term structure of yield volatilities which better fits historical bond data more
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Assets (Accounting)PricesEconometric models Assets (Accounting)PricesMathematical models BondsPricesEconometric models BondsPricesMathematical models BondsValuationMathematical models Capital assets pricing model Consumption (Economics)Mathematical models Debts, External Econometric models Economics EconomicsMethodology EconomicsResearch Financial crises Government securities Inflation (Finance) InsuranceMathematical models Interest rates Interest ratesEconometric models Interest ratesMathematical models Liquidity (Economics)Mathematical models Macroeconomics MacroeconomicsEconometric models Management Monetary policy Monetary policyEconometric models Options (Finance) Queen's University (Kingston, Ont.).Institute for Economic Research Research Risk Risk managementMathematical models RiskMathematical models Speculation UncertaintyEconometric models UncertaintyMathematical models United States Utility theoryMathematical models

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Zin, Stanley
Zin, Stanley Eugene
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