Carl Chiarella

This paper empirically estimates a heterogeneous agents model using S&P 500 data. While previous studies on heterogeneous agents models typically resort to simulation techniques, our empirical results indicate that the market is populated with fundamentalists, chartists, and noise traders. In addition, agents switch between these groups conditional on their previous performance. As a result, the model is capable of explaining the inflation and deflation of bubbles. Finally, it is reported that the model can explain the stylized facts of financial market such as heavy tails and volatility clustering.

Empirical Evidence from the S&P 500

Heterogeneous Expectations in Asset Pricing

Willi Semmler

Peter Flaschel

This book represents the first of three volumes offering a complete reinterpretation and restructuring of Keynesian macroeconomics and a detailed investigation of the disequilibrium adjustment processes characterizing the financial, the goods and the labour markets and their interaction. It questions in a radical way the evolution of Keynesian macroeconomics after World War II and focuses on the limitations of the traditional Keynesian approach until it fell apart in the early 1970s, as well as the inadequacy of the new consensus in macroeconomics that emerged from the Monetarist critique of Keynesianism. Professors Chiarella, Flaschel and Semmler investigate basic methodological issues, the pitfalls of the Rational Expectations School, important feedback channels in the tradition of Tobin’s work, and theories of the wage-price spiral and the evidences for them. The book uses primarily partial approaches, the integration of which will be the subject of subsequent volumes. With its focus on Keynesian propagation mechanisms, the research in this book provides a unique alternative to the black-box shock-absorber approaches that dominate modern macroeconomics. Reconstructing Keynesian Macroeconomics should be of interest to students and researchers who want to look at alternatives to the mainstream macrodynamics that emerged from the Monetarist critique of Keynesianism.

Partial Perspectives

Reconstructing Keynesian Macroeconomics Volume 1

This book represents the second of three volumes offering a complete reinterpretation and restructuring of Keynesian macroeconomics and offers a detailed analysis and comparison of two competing types of approaches to Keynesian macroeconomics.

Reconstructing Keynesian Macroeconomics

This book represents the third of three volumes offering a complete reinterpretation and restructuring of Keynesian macroeconomics and a detailed investigation of the disequilibrium adjustment processes characterizing the financial, the goods and the labour markets and their interaction. This book offers a full treatment of the interlinkages between the real and the financial markets, including an analysis of banking, credit, and endogenous money and asset markets. It remains critical of quite frequently used conventional macro models that have dropped the tradition of studying the macroeconomic feedback channels, well-known in the history of macroeconomics. Those feedback mechanisms are known to have the potential for instabilities with respect to real markets, price dynamics and financial markets. In this volume a particular emphasis is given to the financial-real interaction. The research in this book with its focus on Keynesian propagation mechanisms provides a unique alternative to the black-box shock-absorber approaches that dominate modern macroeconomics. The main conclusion of the work is that policy makers need to reconsider Keynesian ideas, but in the modern form in which they are expressed in this volume. Reconstructing Keynesian Macroeconomics will be of interest to students and researchers who want to look at alternatives to the mainstream macrodynamics that emerged from the Monetarist critique of Keynesianism. This book will also engage central bankers and macroeconomic policy makers.

Macroeconomic Activity, Banking and Financial Markets

Reconstructing Keynesian Macroeconomics Volume 3

Reiner Franke

Toichiro Asada

In the first part of this book, we treat interacting and small open economies. We do this from an historical perspective, starting from the Classical model of the gold standard and the specie-flow mechanism and aim to show there that the Dornbusch IS-LM-PC approach, with or without rational expectations, can still be considered as a (if not the) core contribution to contemporaneous open economy macrodynamics, also on the level of structural macroeconometric model building. In the second part we then extend this analysis to the incorporation of more disequilibrium on the real markets, prominent further feedback channels of the macrodynamic literature and integrated macromodel building. We start from the closed economy, consider large open economies in a fixed exchange rate system, small open economies subject to high capital mobility, and finally two large interacting economies like the USA and Euroland. Our macrofounded approach extends and integrates non-market clearing traditions to macrodynamics and can be usefully compared with the New Keynesian approaches which are generally rigorously microfounded, but often much more limited in scope in capturing full market and agent interactions.

An Integrated Disequilibrium Approach

Open Economy Macrodynamics

Xue-Zhong He

Christina Sklibosios Nikitopoulos

The book presents applications of stochastic calculus to derivative security pricing and interest rate modelling. By focusing more on the financial intuition of the applications rather than the mathematical formalities, the book provides the essential knowledge and understanding of fundamental concepts of stochastic finance, and how to implement them to develop pricing models for derivatives as well as to model spot and forward interest rates. Furthermore an extensive overview of the associated literature is presented and its relevance and applicability are discussed. Most of the key concepts are covered including Ito’s Lemma, martingales, Girsanov’s theorem, Brownian motion, jump processes, stochastic volatility, American feature and binomial trees. The book is beneficial to higher-degree research students, academics and practitioners as it provides the elementary theoretical tools to apply the techniques of stochastic finance in research or industrial problems in the field.

Techniques, Methods and Applications

Derivative Security Pricing

Chih-Ying Hsiao

Lebogang Mateane

This book examines sustainable wealth formation and dynamic decision-making. The global economy experienced a veritable meltdown of asset markets in the years 2007-9, where many funds were overexposed to risky returns and suffered considerable losses. On the other hand, the long-term upswing in the stock market since 2010 has led to asset price booms and some new, but also uneven, wealth formation. In this book a broader set of constraints and guidelines for asset management and wealth accumulation is developed. The authors investigate how wealth formation and the proper management of financial funds can help to adequately buffer income risk and obtain sufficient risk-free income at a later stage of life, while also being socially and environmentally sustainable. The book explores behavioral and institutional rules for decision-making that reflect such constraints and guidelines, without necessarily being optimal in the narrow sense. The authors explain the need for such a dynamic decision-making and dynamic re-balancing of portfolios, by putting forward dynamic programming as an approach to dynamic decision-making that can allow sustainable wealth accumulation and dynamic asset allocation to be successfully integrated. This book provides a clear and comprehensive treatment of asset accumulation and dynamic portfolio models with an emphasis on long term and sustainable wealth formation. An important concern in public debate is the sustainability of our economy and this book employs cutting edge quantitative techniques and models to highlight important facts that cannot be disputed under any reasonable assumptions. It has the potential to become a standard reference for both academic researchers and quantitatively trained practitioners. Eckhard Platen, Professor of Quantitative Finance, University of Technology Sydney, Australia This book should be read by both academics and practitioners alike. The former will find intellectually rigorous discussions and innovative solutions. The latter may find a few of the concepts a bit challenging. Yet, theory and technology are there to help simplify the work of those who worry about what time it is rather than how to make a watch--- but they do need a watch. Jean Brunel, Founder of Brunel Associates and Editor of The Journal of Wealth Management

Sustainable Asset Accumulation and Dynamic Portfolio Decisions

Gian Italo Bischi

Iryna Sushko

The essays in this special volume survey some of the most recent advances in the global analysis of dynamic models for economics, finance and the social sciences. They deal in particular with a range of topics from mathematical methods as well as numerous applications including recent developments on asset pricing, heterogeneous beliefs, global bifurcations in complementarity games, international subsidy games and issues in economic geography. A number of stochastic dynamic models are also analysed. The book is a collection of essays in honour of the 60th birthday of Laura Gardini.​

Essays in Honour of Laura Gardini

Global Analysis of Dynamic Models in Economics and Finance

Alexander Novikov

This volume contains a collection of papers dedicated to Professor Eckhard Platen to celebrate his 60th birthday, which occurred in 2009. The contributions have been written by a number of his colleagues and co-authors. All papers have been - viewed and presented as keynote talks at the international conference “Quantitative Methods in Finance” (QMF) in Sydney in December 2009. The QMF Conference Series was initiated by Eckhard Platen in 1993 when he was at the Australian - tional University (ANU) in Canberra. Since joining UTS in 1997 the conference came to be organised on a much larger scale and has grown to become a signi?cant international event in quantitative ?nance. Professor Platen has held the Chair of Quantitative Finance at the University of Technology, Sydney (UTS) jointly in the Faculties of Business and Science since 1997. Prior to this appointment, he was the Founding Head of the Centre for Fin- cial Mathematics at the Institute of Advanced Studies at ANU, a position to which he was appointed in 1994. Eckhard completed a PhD in Mathematics at the Technical University in Dresden in 1975 and in 1985 obtained his Doctor of Science degree (Habilitation degree in the German system) from the Academy of Sciences in Berlin where he headed the Stochastics group at the Weierstrass Institute.

Essays in Honour of Eckhard Platen

Contemporary Quantitative Finance

Boda Kang

Gunter H Meyer

The early exercise opportunity of an American option makes it challenging to price and an array of approaches have been proposed in the vast literature on this topic. In The Numerical Solution of the American Option Pricing Problem, Carl Chiarella, Boda Kang and Gunter Meyer focus on two numerical approaches that have proved useful for finding all prices, hedge ratios and early exercise boundaries of an American option. One is a finite difference approach which is based on the numerical solution of the partial differential equations with the free boundary problem arising in American option pricing, including the method of lines, the component wise splitting and the finite difference with PSOR. The other approach is the integral transform approach which includes Fourier or Fourier Cosine transforms. Written in a concise and systematic manner, Chiarella, Kang and Meyer explain and demonstrate the advantages and limitations of each of them based on their and their co-workers' experiences with these approaches over the years. Contents:IntroductionThe Merton and Heston Model for a CallAmerican Call Options under Jump-Diffusion ProcessesAmerican Option Prices under Stochastic Volatility and Jump-Diffusion Dynamics — The Transform ApproachRepresentation and Numerical Approximation of American Option Prices under HestonFourier Cosine Expansion ApproachA Numerical Approach to Pricing American Call Options under SVJDConclusionBibliographyIndexAbout the Authors Readership: Post-graduates/ Researchers in finance and applied mathematics with interest in numerical methods for American option pricing; mathematicians/physicists doing applied research in option pricing Keywords:American Option;Early Exercise;Method of Lines;Finite Difference Approach;Integral Transform Approach;Numerical MethodsKey Features:Complete discussion of different numerical methods for American optionsAble to handle stochastic volatility and/or jump diffusion dynamicsAble to produce hedge ratios efficiently and accurately

Finite Difference and Transform Approaches

The Numerical Solution of the American Option Pricing Problem

Laura Gardini

Over the last two decades there has been a great deal of research into nonlinear dynamic models in economics, finance and the social sciences. This book contains twenty papers that range over very recent applications in these areas. Topics covered include structural change and economic growth, disequilibrium dynamics and economic policy as well as models with boundedly rational agents. The book illustrates some of the most recent research tools in this area and will be of interest to economists working in economic dynamics and to mathematicians interested in seeing ideas from nonlinear dynamics and complexity theory applied to the economic sciences.

Essays in Honour of John Barkley Rosser Jr

Nonlinear Dynamics in Economics, Finance and the Social Sciences

This book represents an ongoing research agenda the aim of which is to contribute to the Keynesian paradigm in macroeconomics. It examines the Dynamic General Equilibrium (DGE) model, the assumption of intertemporal optimizing behavior of economic agents, competitive markets and price mediated market clearing through flexible wages and prices.

Quantitative and Empirical Analysis of Nonlinear Dynamic Macromodels

Gangolf Groh

Henry Arnhold Professor of Economics Willi Semmler

This volume is a review which presents both a basic science and clinical perspective on neuroprotective approaches to acute and chronic neurodegenerative conditions. Experts from both fields review current areas of neuroprotection. The book describes basic science discovery in stroke research and the application of such research within the pharmaceutical industry leading to the development of neuroprotective drugs.

Carl Chiarella

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