Imperfect Knowledge and Asset Price Dynamics: Modeling the Forecasting of Rational Agents, Dynamic Prospect Theory and Uncertainty Premia on Foreign Exchange.

Models using the Rational Expectations Hypothesis (REH) are widely recognized to be inconsistent with the observed behavior of premia in financial markets, as well as other features of asset price dynamics. Moreover, many reasons have been advanced as to why the REH cannot generally represent, even approximately, the expectations behavior of individually rational agents. In this paper, we develop a new model of the equilibrium premium in the foreign exchange market that replaces the REH with the Imperfect Knowledge Forecasting (IKF) framework. Because we maintain that agents must cope with imperfect knowledge and that they are not grossly irrational, our IKF approach imposes only qualitative conditions on the formation of individual forecasting models and their updating. We also develop a dynamic extension of the original formulation of Kahneman and Tversky's prospect theory. We find that under IKF and dynamic prospect theory, the equilibrium premium on foreign exchange is positively related to the gap between the aggregate forecast of the exchange rate and its historical benchmark level. We test this implication, using survey data on the German mark-U.S. dollar exchange rate, and find that the behavior of the ex ante premium on foreign exchange is consistent with our model of the premium.EXCHANGE RATES; RISK PREMIUM; IMPERFECT KNOWLEDGE; INDIVIDUAL Rationality; Expectations; Prospect Theory

Empirical Exchange Rate Models and Shifts in the Co-Integrating Vector

exchange rate ; economic policy

Imperfect Knowledge and Behavior in the Foreign Exchange Market

Exchange rate, information, financial market, international finance

Prevalence of glycosuria and diabetes among Indians and Bantu

No Abstract

Qualitative Rationality and Behavior in the Foreign Exchange Market

foreign exchange markets

Reaction Mechanism Implications of Deuteron Rainbow Scattering

This work was supported by the National Science Foundation Grant NSF PHY 78-22774 A02 & A03 and by Indiana Universit

Formal properties of recursive Virtual Machine architectures.

A formal model of hardware/software architectures is developed and applied to Virtual Machine Systems. Results are derived on the sufficient conditions that a machine architecture must verify in order to support VM systems. The model deals explicitly with resource mappings (protection) and with I/O devices. Some already published results are retrieved and other ones, more general, are obtained

Features of the Analyzing Powers in Deuteron Elastic Scattering Near 80 MeV

This work was supported by the National Science Foundation Grant NSF PHY 78-22774 A02 & A03 and by Indiana Universit

Level-Based Analysis of Genetic Algorithms and Other Search Processes

The fitness-level technique is a simple and old way to derive upper bounds for the expected runtime of simple elitist evolutionary algorithms (EAs). Recently, the technique has been adapted to deduce the runtime of algorithms with non-elitist populations and unary variation operators [2,8]. In this paper, we show that the restriction to unary variation operators can be removed. This gives rise to a much more general analytical tool which is applicable to a wide range of search processes. As introductory examples, we provide simple runtime analyses of many variants of the Genetic Algorithm on well-known benchmark functions, such as OneMax, LeadingOnes, and the sorting problem