Johan Waldén

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In the event of a bioterror attack, rapidly estimating the size and time of attack enables short-run forecasts of the number of persons who will be symptomatic and require medical care. We present a Bayesian approach to this problem for use in real time and illustrate it with data from a simulated anthrax attack. The method is simple enough to be(More)
We develop a model in which uninformed rational traders (speculators) are uncertain about whether other market participants are trading on informative signals or noise. This uncertainty generates a non-linear price that reacts more strongly to bad news than it does to good news. In fact, the price can even decrease following good news about fundamentals. We(More)
Asset prices contain information about the probability distribution of future states and the stochastic discounting of these states. Without additional assumptions, probabilities and stochastic discounting cannot be separately identified. To understand this identification challenge, we extract a positive martingale component from the stochastic discount(More)
We analyze the problem of recovering the pricing kernel and objective probability distribution from observed option prices, when the state variable is an unbounded diffusion process. We derive necessary and sufficient conditions for recovery. In the general case, these conditions depend on the properties of the diffusion process, but not on the pricing(More)
Machina (2004) introduced the notion of an ‘almost objective’ event in a continuous state space—high frequency events in a subjective setting such as ‘the realization of the nth decimal place of a stock index.’ Payoffs on such events intuitively appear as objective lotteries in the sense that decision makers should not prefer to place bets on any particular(More)
This paper develops a statistical theory to estimate an unknown factor structure based on financial high-frequency data. I derive a new estimator for the number of factors and derive consistent and asymptotically mixed-normal estimators of the loadings and factors under the assumption of a large number of cross-sectional and high-frequency observations. The(More)
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