Essays in applied economics

This dissertation is composed of three chapters, the first demonstrates that natural gas violates many of the simplifying assumptions frequently used in modeling its behavior. Careful analysis of futures contracts written on gas suggests that gas prices are seasonal while returns are non-Gaussian and evidence stochastic volatility. In addition, examination of options prices indicates the intermittent presence of jumps. We find that models which disregard these properties struggle to recover options prices with any precision. Thus, we propose an alternative nonparametric approach to gas options pricing that captures these salient features while also shedding light on the nature of risk aversion embedded in gas markets. The second chapter presents new estimates and approaches to estimating the home bias puzzle. It uses micro-level data to calculate households' foreign equity exposure as a function of wealth. We find simple estimates have significant errors-in-variables problems and we construct an estimator using grouping to account for this issue. Our estimates still imply low aggregate investment in foreign equity. Finally, we disaggregate the investment decision by incorporating two step decisions that allow households to forgo participating in the market.

Department dc:contributor.department

Massachusetts Institute of Technology. Dept. of Economics.

Grantor dc:publisher

Massachusetts Institute of Technology

Year dc:date.issued

2007

Author dc:creator

• Grant, Alan Michael

Advisor dc:contributor.advisor

• Roberto Rigobon and Robert Gibbons.

• Economics.

Statement dc:rights

• M.I.T. theses are protected by copyright. They may be viewed from this source for any purpose, but reproduction or distribution in any format is prohibited without written permission. See provided URL for inquiries about permission.

Licence dc:rights.uri

• http://dspace.mit.edu/handle/1721.1/7582

Language dc:language.iso

eng

Handle dc:identifier.uri

http://hdl.handle.net/1721.1/38610

OAI identifier oai:identifier

oai:dspace.mit.edu:1721.1/38610