NBER Publications by Mikhail Chernov

Contact and additional information for this authorAll NBER papers and publicationsNBER Working Papers only

Working Papers and Chapters

August 2013Identifying Taylor Rules in Macro-Finance Models
with David Backus, Stanley E. Zin: w19360
Identification problems arise naturally in forward-looking models when agents observe more than economists. We illustrate the problem in several New Keynesian and macro-finance models in which the Taylor rule includes a shock unseen by economists. We show that identification of the rule's parameters requires restrictions on the form of the shock. A state-space treatment verifies that this works when we observe the state of the economy and when we infer it from observable macroeconomic variables or asset prices.
July 2011Sources of Entropy in Representative Agent Models
with David Backus, Stanley E. Zin: w17219
We propose two metrics for asset pricing models and apply them to representative agent models with recursive preferences, habits, and jumps. The metrics describe the pricing kernel's dispersion (the entropy of the title) and dynamics (time dependence, a measure of how entropy varies over different time horizons). We show how each model generates entropy and time dependence and compare their magnitudes to estimates derived from asset returns. This exercise -- and transparent loglinear approximations -- clarifies the mechanisms underlying these models. It also reveals, in some cases, tension between entropy, which should be large enough to account for observed excess returns, and time dependence, which should be small enough to account for mean yield spreads.

Published: \Sources of entropy in representative agent models," with M. Chernov and S. Zin, 2014, Journal of Finance 69, 51-99. citation courtesy of

August 2009Disasters implied by equity index options
with David Backus, Ian Martin: w15240
We use prices of equity index options to quantify the impact of extreme events on asset returns. We define extreme events as departures from normality of the log of the pricing kernel and summarize their impact with high-order cumulants: skewness, kurtosis, and so on. We show that high-order cumulants are quantitatively important in both representative-agent models with disasters and in a statistical pricing model estimated from equity index options. Option prices thus provide independent confirmation of the impact of extreme events on asset returns, but they imply a more modest distribution of them.

Published: David Backus & Mikhail Chernov & Ian Martin, 2011. "Disasters Implied by Equity Index Options," Journal of Finance, American Finance Association, vol. 66(6), pages 1969-2012, December. citation courtesy of

Contact and additional information for this authorAll NBER papers and publicationsNBER Working Papers only

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