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This dissertation offers two perspectives on the making of monetary policy under uncertainty. The first two chapters examine the consequences of uncertainty for the macroeconomic function of the central bank - the stabilisation of macroeconomic variables of interest around socially desirable targets. The third chapter examines the consequences of uncertainty for the central bank's microeconomic function - the public supply of liquidity. The first chapter asks whether society benefits from the delegation of monetary policy to cautious and conservative central bankers. We offer a critical view on the delegation literature and relax seemingly innocuous assumptions about uncertainty and preferences. First, caution improves credibility but does not obviate the need for central-bank conservatism. Second, previous models of delegation have focused on suboptimal forms of conservatism. We derive optimal concepts of conservatism that mitigate, or eliminate, any residual problem of credibility. Third, we rationalize why credible monetary policy may be conducive to stable inflation and output. The second chapter examines the implications of instrument uncertainty for optimal monetary policy following the introduction of non-quadratic preferences. We investigate both symmetric and asymmetric preferences and discuss the consequences for caution, gradualism and the optimal delegation of monetary policy. The third chapter examines the microeconomic role of the central bank. We develop a rationale for the provision of public liquidity based on an incomplete contracting framework. The model illustrates to what extent wealth-constrained entrepreneurs are leveraged by collateralized debt contracts and examines the consequences of costly collateral liquidation and aggregate asset price uncertainty for the provision of external finance.

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Most decision making processes involve risk associated with the uncertainty of a range of outcomes that may, or may not, occur at some time in the future. In recent years, many of the recent advances in risk theory have come from the field of financial mathematics. While the latter subject is now well developed we claim that there are still some important aspects of decision-making involving risk that are not covered by the existing theory. In particular, we believe that the following three questions require further investigations. 1. In the financial portfolio management context, if decisions need to be taken at multiple stages, is it possible to devise a time consistent risk minimization policy? 2. If the value of an asset of interest is strongly influenced by a climatic variable (such as temperature or rainfall) that is best modelled by techniques that are not normally used in financial modelling, how should financial derivatives on such an asset be priced? 3. If the undesirable risky phenomenon depends on both the upper and lower tails of a, possibly asymmetric, probability distribution (e.g., that of amount of rainfall), what is a suitable measure of risk in this context? This thesis supplies, at least partial, answers to each of these challenging questions. We hope that these results will motivate others to develop even better solutions. / First, for the purpose of defining a dynamic measure of risk, we introduce the time consistency concept that is inspired by the so-called principle of optimality of dynamic programming and demonstrate - via an example - that the conditional value-at-risk (CVaR) need not be time consistent in a multi-stage case. Then, we give the formulation of the target-percentile risk measure which is time consistent and hence more suitable in the multi-stage investment context. / Second, in order to hedge the risk related to the uncertainty of weather we study pricing of derivatives where the underlying asset is sensitive to the weather and the price is a function of a weather variable, for instance, temperature or rain-fall. We use time series to model the temperature and assume that the price of the underlying asset is a deterministic function of the temperature. We discuss both the continuous and discrete time models using the replicating portfolio approach. We obtain a partial differential equation that is similar to the Black-Scholes PDE in the continuous time case. We also provide a binomial approximation for the continuous time model and the corresponding PDE, and report on some numerical experiments. / Next, we analyze the risk encountered in many environmental problems that appear to exhibit special "two-sided" characteristics. For instance, in a given area and in a given period, farmers do not want to see too much or too little rainfall. We formulate and solve this problem with the help of a "two-sided loss function" that depends on the above ranges. Even in financial portfolio optimization a loss and a gain are "two sides of a coin", so it is desirable to deal with them in a manner that reflects an investor's relative concern. Consequently, we define Type I risk: "the loss is too big" and Type II risk: "the gain is too small". Ideally, we would want to minimize the two risks simultaneously. However, this may be impossible and hence we try to balance these two types of risk. / Thesis (PhDMathematics)--University of South Australia, 2006.

Thesis (Ph. D.)--University of Nevada, Reno, 2007. / "May 2007." Includes bibliographical references (leaves 75-86). Online version available on the World Wide Web.

Thesis (Ph. D.)--Ohio State University, 2007.

Thesis (Ph. D.)--Michigan State University. Business Administration, 2006. / Title from PDF t.p. (viewed on Nov. 20, 2008) Includes bibliographical references (p. 186-193). Also issued in print.

Thesis (Ph. D.)--University of Chicago, Dept. of Economics, June 1998. / Includes bibliographical references. Also available on the Internet.

Thesis (Ph. D.)--Lehigh University, 2005. / Includes vita. Includes bibliographical references (leaves 164-171).

Thesis (Ph. D.)--University of Missouri-Columbia, 2004. / Typescript. Vita. Includes bibliographical references (leaves 78-85). Also available on the Internet.