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NBER WORKING PAPER SERIES OF BELIEFS. Pierre Collin-Dufresne
NBER WORKING PAPER SERIES OF BELIEFS. Pierre Collin-Dufresne

... cal findings question this doubly-stochastic assumption. For example, Das et al. (2006, 2007) report that the observed clustering of defaults in actual data are inconsistent with this assumption. Duffie et al (2009) use a fragility-based model similar to ours to identify a hidden state variable consis ...
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... exclusion date, and inventories are back to normal within two weeks. We note that, during the crisis, the cumulative change in inventories for the short-maturity bonds becomes negative within a day of the exclusion, probably because selling these liquid bonds was the easiest way to raise cash. We al ...
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... interest rates and risk premium.1 Thus, a change in risk premium can be expected to affect bond yields. However, the recent literature has found the opposite; risk premium in the Treasury bond market does not appear to affect the shapes of yield curves. For example, Cochrane and Piazzesi (2005, p.14 ...
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... 4. What works better in a portfolio and why? Returns and volatility are major drivers of the asset allocation decisions, but there is one more key piece of information involved – namely correlation. Correlation measures how each type of investment moves in relation to other investments in a portfoli ...
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Arbitrage

In economics and finance, arbitrage (US /ˈɑrbɨtrɑːʒ/, UK /ˈɑrbɨtrɪdʒ/, UK /ˌɑrbɨtrˈɑːʒ/) is the practice of taking advantage of a price difference between two or more markets: striking a combination of matching deals that capitalize upon the imbalance, the profit being the difference between the market prices. When used by academics, an arbitrage is a transaction that involves no negative cash flow at any probabilistic or temporal state and a positive cash flow in at least one state; in simple terms, it is the possibility of a risk-free profit after transaction costs. For instance, an arbitrage is present when there is the opportunity to instantaneously buy low and sell high.In principle and in academic use, an arbitrage is risk-free; in common use, as in statistical arbitrage, it may refer to expected profit, though losses may occur, and in practice, there are always risks in arbitrage, some minor (such as fluctuation of prices decreasing profit margins), some major (such as devaluation of a currency or derivative). In academic use, an arbitrage involves taking advantage of differences in price of a single asset or identical cash-flows; in common use, it is also used to refer to differences between similar assets (relative value or convergence trades), as in merger arbitrage.People who engage in arbitrage are called arbitrageurs /ˌɑrbɨtrɑːˈʒɜr/—such as a bank or brokerage firm. The term is mainly applied to trading in financial instruments, such as bonds, stocks, derivatives, commodities and currencies.
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