Tests of rational expectations in a stark setting

Rational expectations (Economic theory)

Arbitrage opportunities in CDS term structure: theory and implications for OTC derivatives

Absence-of-Arbitrage (AoA) is the basic assumption underpinning derivatives pricing theory. As part of the OTC derivatives market, the CDS market not only provides a vehicle for participants to hedge and speculate on the default risks of corporate and sovereign entities, it also reveals important market-implied default-risk information concerning the counterparties with which financial institutions trade, and for which these financial institutions have to calculate various valuation adjustments (collectively referred to as XVA) as part of their pricing and risk management of OTC derivatives, to account for counterparty default risks. In this study, we derive No-arbitrage conditions for CDS term structures, first in a positive interest rate environment and then in an arbitrary one. Using an extensive CDS dataset which covers the 2007-09 financial crisis, we present a catalogue of 2,416 pairs of anomalous CDS contracts which violate the above conditions. Finally, we show in an example that such anomalies in the CDS term structure can lead to persistent arbitrage profits and to nonsensical default probabilities. The paper is a first systematic study on CDS-term-structure arbitrage providing model-free AoA conditions supported by ample empirical evidence

AN INVESTIGATION OF A CLASS OF TECHNOLOGICAL THEORIES OF PRODUCTION

Abstract not availabl

Household Demand Responsiveness to Peak Use Pricing: Implications Drawn from Experimental Studies of Consumer Demand Behavior of Both Humans and Animals

The authors approach the problem of demand responsiveness to peak use pricing from the perspective of experimental economists working in the area of consumer demand behavior. Results from experiments involving both human and laboratory animal consumers are presented suggesting that wide classes of house-_ hold economic activities will be quite responsive to changes in peak use pricing but that the demand for space heating and cooling will be highly inelastic without major changes in capital stocks. The reasons for these differences are discussed along with suggestions of low cost technologies for achieving greater price responsiveness in space heating and cooling demands