American option valuation using first-passage densities

This paper explores the advantages of pricing American options using the first-passage density of a Brownian motion to a curved barrier. First, we demonstrate that, under this approach, the exact computation of the optimal boundary becomes secondary. Consequently, a simple approximation to the optimal boundary suffices to obtain accurate prices. Moreover, the first-passage approach tends to give more accurate prices than the early-exercise-premium integral representation. We present two ways of implementing the approach. The first is based on an exact representation of the first-passage density. The second exploits the method of images, which gives us a family of barriers with first-passage densities given in closed form. Both methods are very easy to implement and give accurate prices. In particular, the images-based method is extremely accurate.     

Effects of State-Dependent Forward Guidance,Large-Scale Asset Purchases,and Fiscal Stimulus in a Low-Interest-Rate Environment

We study the incidence and severity of periods with a binding effective lower bound on nominal interest rates and the efficacy of three types of state-dependent policies—forward guidance about the path of future interest rates, large-scale asset purchases, and spending-based fiscal stimulus—in mitigating the detrimental consequences of the lower bound for macro-economic stability. Based on the ECB's New Area-Wide Model of the euro area, our findings suggest that, if left unaddressed, the lower bound can cause substantial macro-economic distortions. In the near term, forward guidance, if fully credible, is most powerful and can largely undo these distortions. A combination of imperfectly credible forward guidance, asset purchases, and fiscal stimulus is almost equally effective, especially when asset purchases enhance the credibility of the forward-guidance policy via a signaling effect. In the long run, with an equilibrium real rate as low as zero, a combination of all three policies is needed to materially reduce the distortions.     

Monetary Policy and Inequality

We analyze the distributional effects of monetary policy on income, wealth, and consumption. We use administrative household-level data covering the entire population in Denmark over the period 1987 to 2014 and exploit a long-standing currency peg as a source of exogenous variation in monetary policy. We find that gains from softer monetary policy in terms of income, wealth, and consumption are monotonically increasing in ex ante income. The distributional effects reflect systematic differences in exposure to the various channels of monetary policy, especially nonlabor channels (e.g., leverage and risky assets). Our estimates imply that softer monetary policy increases income inequality.     

Inter- and intracountry effects of the Covid-19 pandemic on wages and economic growth

This paper aims to investigate the impact of the Covid-19 pandemic on technological knowledge, wage inequality, and economic growth, by proposing a Direct-Technical-Change model with two economies, an Innovative and other Follower. Six hypotheses are considered: (i) decrease in the unskilled-labor supply, (ii) decrease in the absolute advantage of unskilled labor, (iii) decrease in the intensity of the unskilled sector, (iv) hypothesis (i) combined with a lower decrease in the skilled-labor supply, (v) hypothesis (ii) combined with a lower decrease in the absolute advantage of skilled labor, (vi) all the variations previously considered. By comparing the steady states before and after the shock, we find an increase in the technological-knowledge bias that favors the skill-intensive sector, which positively affects the skill premium. However, in hypotheses (i) and (iv), the decrease in the relative supply of unskilled labor dominates the effect on the skill premium, which thus decreases. The economic growth rate is always penalized except for hypothesis (iii). Hypotheses (ii) and (iv) are undesirable because they increase wage inequality and penalize economic growth. Governments should support innovative activity, the engine of technological-knowledge progress, and thus economic growth, but with caution not to exacerbate the skill premium.     

Local and global indeterminacy and transition dynamics in a growth model with public goods

Portuguese Economic Journal - This paper studies local and global indeterminacy and transition dynamics in an endogenous growth model where public goods increase production and the...     

What is an InsurTech? A scientific approach for defining the term

The insurance sector has been transformed as a result of the impact of InsurTech. However, although InsurTech has become a highly relevant concept in recent years, there has yet to be an agreed-upon meaning of InsurTech. Therefore, it is necessary to establish a solid definition that provides a clear understanding of the term InsurTech. For this purpose, an essential study of the complete scientific production has been carried out through the results obtained for InsurTech in the most relevant databases up to December 31, 2021. This paper aims to define the term InsurTech considering all the contributions made by scholars in the existing academic literature. The research methodology has consisted of an extensive systematic literature review merged with a comprehensive analysis of the nature of the definitions of InsurTech through a three-stage procedure. A total of 111 academic articles referring to InsurTech have been found. Based on a rigorous analysis and building on the common elements of the 17 meanings provided by the academics, a definition of Insurtech from a scientific approach has been presented. Finally, the nuances of this definition for an Insurtech to be considered as such are discussed and explained.