One of the most puzzling features of currency prices is the forward premium anomaly: the
tendency for high interest rate currencies to appreciate. We characterize the anomaly in the …

Prices of currency options commonly differ from the Black-Scholes formula along two dimensions:
implied volatilities vary by strike price (volatility smiles) and maturity (implied volatility …

In this article we describe the cumulative distribution function of excess returns conditional
on a broad set of predictors that summarize the state of the economy. We do so by estimating …

So far, practicality has kept researchers in the field from going beyond three-factor models.
The simple estimation method in this article should make the implementation of three-factor …

We assume that the instantaneous riskless rate reverts toward a central tendency which, in
turn, is changing stochastically over time. As a result, current short-term rates are not …

A variety of realistic economic considerations make jump-diffusion models of interest rate
dynamics an appealing modeling choice to price interest-rate contingent claims. However, …

We investigate the effects of short-term rate targeting by the Federal Reserve on the term
structure of interest rates, and make contributions at two levels. Using a new series of interest …

We make two contributions to the study of interest rates. The first is to characterize their
dynamics in a new way. We estimate forecasting relations based on one-period changes in …

… SILVERIO FORESI AND LIUREN WU … the conditioning horizon increases by virtue of
the classic central limit theorem (Backus, Foresi, and Wu [1997]). To generate return non-normality …

Perhaps the most puzzling feature of currency prices is the tendency for high interest rate
currencies to appreciate, when the expectations hypothesis suggests the reverse. Some have …