Essay 1 - To evaluate measures of expectations I examine and compare some of the most common methods for capturing expectations: the futures method which utilizes financial market prices, the VAR forecast method, and the survey method. I study average expectations on the Federal funds rate target, and the main findings can be summarized as follows: i) the survey measure and the futures measure are highly correlated; the correlation coefficient is 0.81 which indicates that the measures capture the same phenomenon, ii) the survey measure consistently overestimates the realized changes in the interest rate, iii) the VAR forecast method shows little resemblance with the other methods. Essay 2 - This paper takes a critical look at available proxies of uncertainty. Two questions are addressed: (i) How do we evaluate these proxies given that subjective uncertainty is inherently unobservable? (ii) Is there such a thing as a general macroeconomic uncertainty? Using correlations, some narrative evidence and a factor analysis, we find that disagreement and stock market volatility proxies seem to be valid measures of uncertainty whereas probability forecast measures are not. This result is reinforced when we use our proxies in standard macroeconomic applications where uncertainty is supposed to be of importance. Uncertainty is positively correlated with the absolute value of the GDP-gap. Essay 3 - The co-movements of exchange rates and interest rates as the economy responds to shocks is a potential source of deviations from uncovered interest rate parity. This paper investigates whether an open economy macro model with endogenous monetary policy is capable of explaining the exchange rate risk premium puzzle. When the central bank is engaged in interest rate smoothing, a negative relationship between exchange rate changes and interest differentials emerge for realistic parameter values without assuming an extremely large and variable risk premium as done in previous studies. Essay 4 - This paper shows how market expectations as a function of the forecasting horizon can be constructed and used to analyse issues like how far in advance monetary policy actions are anticipated and how the market’s understanding of monetary policy has developed over time. On average about half of a monetary policy action is anticipated one month before a policy meeting. The share of fully anticipated FOMC policy decisions increase from less than 10% at the two-month horizon, to about 70% at the one-day horizon. The market ability to predict policy has improved substantially after 1999 as the fraction of fully anticipated meetings has quadrupled at the monthly horizon. This improvement can be described as an effect of increased central bank transparency.

This paper examines the interest rate sensitivity of Business Development Companies (BDCs). The results of this study are intended to lend insight to investors about the viability and timing of investments in BDCs during the business cycle. Similar to previous research that has examined interest rate sensitivity of financial companies, this paper employs a two-factor market model to see whether BDCs are responsive to changes in short, medium, and long-term interest rates. My particular interest in BDCs is motivated by their unique asset-liability structure and requirements, as well as their high dividend payouts. Monthly data is drawn from the period ranging from January 2004 through December 2012. Using a sample of 30 BDCs, I estimate the sensitivity of BDC stock returns to stock market and interest rate changes in general. I then proceed to test whether size and Small Business Investment Company (SBIC) licensure status affect these sensitivities.

Il presente lavoro raccoglie 4 contributi sul tema dei differenziali sui tassi di interesse esistenti tra i membri dell'unione monetaria europea. / I investigate the determinants of sovereign yield spreads in EMU.

Over the past decade, the European Union has been characterized by an explosion of expenditure, insufficient revenue, high deficits and a lack of budget discipline. Financial markets in Europe are currently dealing with enormous government debts, poor government balance sheets and a weakening banking system. The purpose of this paper is to investigate the origins of the current Euro-crisis and specifically identify the extent to which it will affect the nation of Italy going forward. To understand Italy's stance amid the Euro-crisis, we proceed as follows: First, a historical background section will develop the fundamental issues that have developed in Europe over time leading to the current situation. Next, a discussion about Italian economics and politics will identify Italy's central policy issues placed in the context of the Euro-crisis. Subsequently, Italy's issues with tax evasion will be covered illustrating its history and enforcement addendums going forward. The final section of this paper will present a forward-looking prediction about the fate of Italy and the Euro-zone and will include some of the necessary steps toward avoiding an international economic collapse.

In this thesis I discuss the method of time-change and its applications in quantitative finance. I mainly consider the time change by writing a continuous diffusion process as a Brownian motion subordinated by a subordinator process. I divide the time change method into two cases: deterministic time change and stochastic time change. The difference lies in whether the subordinator process is a deterministic function of time or a stochastic process of time. Time-changed Brownian motion with deterministic time change provides a new viewpoint to deal with option pricing under stochastic interest rates and I utilize this idea in pricing various exotic options under stochastic interest rates. Time-changed Brownian motion with stochastic time change is more complicated and I give the equivalence in law relation governing the ``original time" and the ``new stochastic time" under different clocks. This is readily applicable in pricing a new product called ``timer option". It can also be used in pricing barrier options under the Heston stochastic volatility model. Conclusion and further research directions in exploring the ideas of time change method in other areas of quantitative finance are in the last chapter.

Consumerfinance serves as the source of financial stability and uplifts the economicand social status of the household. This research is based on qualitative studyand up to some extent on quantitative base too. The major objective of thisstudy is to gain insights of consumer financing in Pakistan from a consumerperspective. At the same time, the study investigates and analyzes the defined rulesand regulations for banks and for consumers during the time of obtaining theloans from banks and well as from other financial institutions. Interestingly,during the process of investigation, the study encounters a lot of constraintsand dissatisfaction perceived by tits customers. Hence the report seeks outthose issues and challenges that are hindering to meet customer demand forsound consumer finance. The report is duly influenced by the Central Bank(State Bank of Pakistan), which is responsible and obliged to secure theinterests of the consumers.

In this thesis I discuss the method of time-change and its applications in quantitative finance. I mainly consider the time change by writing a continuous diffusion process as a Brownian motion subordinated by a subordinator process. I divide the time change method into two cases: deterministic time change and stochastic time change. The difference lies in whether the subordinator process is a deterministic function of time or a stochastic process of time. Time-changed Brownian motion with deterministic time change provides a new viewpoint to deal with option pricing under stochastic interest rates and I utilize this idea in pricing various exotic options under stochastic interest rates. Time-changed Brownian motion with stochastic time change is more complicated and I give the equivalence in law relation governing the ``original time" and the ``new stochastic time" under different clocks. This is readily applicable in pricing a new product called ``timer option". It can also be used in pricing barrier options under the Heston stochastic volatility model. Conclusion and further research directions in exploring the ideas of time change method in other areas of quantitative finance are in the last chapter.

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Interactions between macroeconomic fundamentals and term structure of interest rates be stronger according to the way of changes in structure of worldwide economy. Combined macro-finance analysis determines the joint dynamics of term structure of interest rates and macroeconomic fundamentals. This thesis provides analysis of two existing macro-finance models and an original one. Parameter estimations for these three macro-finance term structure models are done for monthly Turkish data by use of an efficient recursive estimator Kalman filter. In spite of the small scale application the results are satisfactory except first model but with longer sets of macroeconomic variables and interest rate data models provide more encouraging results.

Thesis (Ph. D.)--University of Washington, 2002. / Vita. Includes bibliographical references (p. 85-93).