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A GENERAL EQUILIBRIUM MODEL FOR EXCHANGE RATES AND ASSET PRICES
IN AN ECONOMY SUBJECT TO JUMP-DIFFUSION UNCERTAINTY
by
Mathias Knape
A Dissertation Presented to the
FACULTY OF THE GRADUATE SCHOOL
UNIVERSITY OF SOUTHERN CALIFORNIA
In Partial Ful llment of the
Requirements for the Degree
DOCTOR OF PHILOSOPHY
(APPLIED MATHEMATICS)
August 2009
Copyright 2009 Mathias Knape
Object Description
| Title | A general equilibrium model for exchange rates and asset prices in an economy subject to jump-diffusion uncertainty |
| Author | Knape, Mathias |
| Author email | knape@usc.edu; mathias.knape@gmail.com |
| Degree | Doctor of Philosophy |
| Document type | Dissertation |
| Degree program | Applied Mathematics |
| School | College of Letters, Arts and Sciences |
| Date defended/completed | 2009-06-19 |
| Date submitted | 2009 |
| Restricted until | Restricted until 05 Aug. 2011. |
| Date published | 2011-08-05 |
| Advisor (committee chair) |
Zapatero, Fernando Mikulevicius, Remigijus |
| Advisor (committee member) | Ma, Jin |
| Abstract | This dissertation examines asset prices, the exchange rate and its higher moment properties in an economy subject to both diffusive and jump risk. The model used in this dissertation is an extension of Zapatero's (1995) two-good two-country intertemporal international equilibrium model for two logarithmic representative agents. Uncertainty enters the economy through a three dimensional Brownian motion and two Poisson processes representing positive and negative jumps in the dividend process of the goods. Individual financial markets are incomplete, but all claims can be hedged completely in the international financial market. From Zapatero's (1995) model it is known that the exchange rate increases with the interest rate differential and the diffusion parameter of the domestic equity market and decreases with the covariance between the domestic and foreign equity market. This dissertation shows that in a jump-diffusion setting the expected equilibrium exchange rate change additionally increases (decreases), if the foreign positive and negative jump sizes are bigger (smaller) in absolute value than their domestic equivalents. This dissertation thereby provides a new explanation for the interest rate parity puzzle. It is a well-known empirical fact that exchange rates are skewed and have excess kurtosis. In contrast to traditional equilibrium models subject to diffusive risk the exchange rate return exhibits these two properties in the jump-diffusion setting. The sign of the skewness of the exchange rate return is dependent on the difference between the skewness of the returns of the domestic and foreign dividend processes. |
| Keyword | exchange rate; incomplete markets; uncovered interest rate parity puzzle; jump-diffusion; intertemporal international equilibrium model; logarithmic agents; skewness and kurtosis of exchange rate returns |
| Language | English |
| Part of collection | University of Southern California dissertations and theses |
| Publisher (of the original version) | University of Southern California |
| Place of publication (of the original version) | Los Angeles, California |
| Publisher (of the digital version) | University of Southern California. Libraries |
| Provenance | Electronically uploaded by the author |
| Type | texts |
| Legacy record ID | usctheses-m2486 |
| Rights | Knape, Mathias |
| Repository name | Libraries, University of Southern California |
| Repository address | Los Angeles, California |
| Repository email | http://www.usc.edu/isd/libraries/services/ask_a_librarian/email/ |
| Filename | etd-Knape-3040 |
| Archival file | uscthesesreloadpub_Volume26/etd-Knape-3040.pdf |
Description
| Title | Page 1 |
| Full text | A GENERAL EQUILIBRIUM MODEL FOR EXCHANGE RATES AND ASSET PRICES IN AN ECONOMY SUBJECT TO JUMP-DIFFUSION UNCERTAINTY by Mathias Knape A Dissertation Presented to the FACULTY OF THE GRADUATE SCHOOL UNIVERSITY OF SOUTHERN CALIFORNIA In Partial Ful llment of the Requirements for the Degree DOCTOR OF PHILOSOPHY (APPLIED MATHEMATICS) August 2009 Copyright 2009 Mathias Knape |
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