D81 - Criteria for Decision-Making under Risk and Uncertainty
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Uncertain Costs and Vertical Differentiation in an Insurance Duopoly
Classical oligopoly models predict that firms differentiate vertically as a way of softening price competition, but some metrics suggest very little quality differentiation in the U.S. auto insurance market. -
The Safety of Government Debt
We examine the safety of government bonds in the presence of Knightian uncertainty amongst financial market participants. In our model, the information insensitivity of government bonds is driven by strategic complementarities across counterparties and the structure of trading relationships. -
Price Level versus Inflation Targeting under Model Uncertainty
The purpose of this paper is to make a quantitative contribution to the inflation versus price level targeting debate. It considers a policy-maker that can set policy either through an inflation targeting rule or a price level targeting rule to minimize a quadratic loss function using the actual projection model of the Bank of Canada (ToTEM). -
Efficient Hedging and Pricing of Equity-Linked Life Insurance Contracts on Several Risky Assets
The authors use the efficient hedging methodology for optimal pricing and hedging of equity-linked life insurance contracts whose payoff depends on the performance of several risky assets. -
Guarding Against Large Policy Errors under Model Uncertainty
How can policy-makers avoid large policy errors when they are uncertain about the true model of the economy? -
Lines of Credit and Consumption Smoothing: The Choice between Credit Cards and Home Equity Lines of Credit
The author models the choice between credit cards and home equity lines of credit (HELOCs) within a framework where consumers hold lines of credit as instruments of consumption smoothing across state and time. -
Risk Perceptions and Attitudes
Changes in risk perception have been used in various contexts to explain shorter-term developments in financial markets, as part of a mechanism that amplifies fluctuations in financial markets, as well as in accounts of "irrational exuberance." -
Monetary Policy under Model and Data-Parameter Uncertainty
Policy-makers in the United States over the past 15 to 20 years seem to have been cautious in setting policy: empirical estimates of monetary policy rules such as Taylor's (1993) rule are much less aggressive than those derived from optimizing models.