1. Introduction The "law of small numbers" is the name given to the well documented empirical regularity that people tend to overinfer from small samples in Tversky and Kahneman (1971). This post discusses a few of the results from Rabin (2002) … [Continue reading]
Arora et al. (2012)
1. Introduction In this post I work through the main result in Arora, Barak, Brunnermeier and Ge (2012) which formulates a simple securitization setting with $I$ underlying assets (e.g., mortgages) and $J$ derivative assets (e.g., CDOs) … [Continue reading]
Notes: Gabaix (2012)
1. Introduction In this post, I review the sparsity based model of bounded rationality introduced in Gabaix (2011) and then extended in Gabaix (2012). In the baseline framework presented in Gabaix (2011), a boundedly rational agent faces the … [Continue reading]
Notes: Ait-Sahalia and Jacod (2010)
1. Introduction In this post, I summarize the econometric method introduced in Analyzing the Spectrum of Asset Returns (JEL 2011) by Yacine Ait-Sahalia and Jean Jacod. From an economic perspective, Delbaen and Schachermayer (1994) (Theorem $1.1$) … [Continue reading]
Notes: Kristensen and Mele (2011)
1. Introduction In this post, I work through Adding and Subtracting Black Scholes, JFE (2011) by Antonio Mele and Dennis Kristensen. This paper develops a method for approximating the price of an asset where no closed form expression exists. In the … [Continue reading]