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Ricardo Reis: 05-15-09 Economist of the Day, Columbia University

June 25, 2011 by Wayne Marr   Comments (0)

We choose Ricardo Reis as Economist of the Day. Ricardo is Professor of Economics at Columbia University. Richardo is also considered as one of the top 5 economists for young economists (<10 years in profession) IDEA/RePEc. You can find the … Continue reading →

Raj Chetty: 05-14-09 Economist of the Day (Berkeley, moving to Harvard)

June 25, 2011 by Wayne Marr   Comments (0)

We choose Raj Chetty as the Economist of the Day. Raj is Professor of Economics at Berkeley. Greg Mankiw indicated that Harvard has hired Raj and he will be moving to Harvard next year. Raj is rated by IDEAS/RePEc as … Continue reading →

Atif R. Mian: 05-13-09 Economist of the Day

June 25, 2011 by Wayne Marr   Comments (0)

Today, we choose Atif Mian as the Economist of the Day. Atif is an Associate Professor of Economics at the University of Chicago. Contact Information T: (773) 834-8266 amian(at)ChicagoBooth.edu Short Biography Atif R. Mian studies links between financial markets and … Continue reading →

New: The Crisis in Economic Theory

June 25, 2011 by Alan Kirman   Comments (0)

This paper discusses modern macroeconomic and financial models in the light of the current crisis. Theory has been revealed to be inadequate in its explanation of the origins and the nature of the crisis, as Jean-Claude Trichet the Governor of the European Central bank and his colleagues at other central banks have indicated. Basic macroeconomic models, however sophisticated have continued to be based on the same foundations shown to be wanting in the 1970s and financial market models have conti

New: Epidemics of Rules, Information Aggregation Failure and Market Crashes

June 25, 2011 by Alan Kirman   Comments (0)

This short paper argues that rationally motivated coordination between agents is an important ingredient to understand the current economic crisis. We argue that changes in parameters that model the structure of a macro-economy or financial markets are not exogenous but arise as agents adopt rules that appear to be the norm around them. For example, if a rule is adopted by the majority of ones' neighbors it will become acceptable or, alternatively, if agents learn that changing their rule leads

REVISION: Optimal Trade Execution under Geometric Brownian Motion in the Almgren and Chriss Framework

June 25, 2011 by Jim Gatheral   Comments (0)

With an alternative choice of risk criterion, we solve the HJB equation explicitly to find a closed-form solution for the optimal trade execution strategy in the Almgren-Chriss framework assuming the underlying unaffected stock price process is geometric Brownian motion.

REVISION: Transient Linear Price Impact and Fredholm Integral Equations

June 25, 2011 by Jim Gatheral   Comments (0)

We consider the linear-impact case in the continuous-time market impact model with transient price impact proposed by Gatheral (2008). In this model, the absence of price manipulation in the sense of Huberman and Stanzl (2004) can easily be characterized by means of Bochner's theorem. This allows us to study the problem of minimizing the expected liquidation costs of an asset position under constraints on the trading times. We prove that optimal strategies can be characterized as measure-valued

REVISION: Optimal Trade Execution under Geometric Brownian Motion in the Almgren and Chriss Framework

June 25, 2011 by Jim Gatheral   Comments (0)

With an alternative choice of risk criterion, we solve the HJB equation explicitly to find a closed-form solution for the optimal trade execution strategy in the Almgren-Chriss framework assuming the underlying unaffected stock price process is geometric Brownian motion.

REVISION: Convergence of Heston to SVI

June 25, 2011 by Jim Gatheral   Comments (0)

In this short note, we prove by an appropriate change of variables that the SVI implied volatility parameterization presented in Gatheral's book and the large-time asymptotic of the Heston implied volatility agree algebraically, thus confirming a conjecture from Gatheral as well as providing a simpler expression for the asymptotic implied volatility in the Heston model. We show how this result can help in interpreting SVI parameters.

REVISION: Exponential Resilience and Decay of Market Impact

June 25, 2011 by Jim Gatheral   Comments (0)

Assuming a particular price process, it was shown by Gatheral that a model that combines nonlinear price impact with exponential decay of market impact admits price manipulation, an undesirable feature that should lead to rejection of the model. Subsequently, Alfonsi and Schied proved that their model of the order book which has nonlinear market impact and exponential resilience, is free of price manipulation. In this paper, we show how these at-first-sight incompatible results are in reality pe