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Working Paper
The Missing Tail Risk in Option Prices
This paper contributes to the literature on deviations from rational expectations in financial markets and to the literature on evaluating density forecasts. We first develop a novel statistic to evaluate the overall accuracy of distributional forecasts, and find two methods that yield accurate distributional forecasts. We then propose another statistic to examine the relative accuracy over the entire distribution range. Our results indicate more oil price realizations in the left tail than predicted. We argue that this finding points to a persistent behavioral forecasting bias and a ...
Working Paper
The Role of Technology and Energy Substitution in Climate Change Mitigation
Mitigating climate change is critically linked to reducing an economy’s reliance on fossil energy. This paper examines U.S. energy dependence, measured by its factor share, using a neoclassical framework in a systematic way. We propose substitution as a simple, explicit economic mechanism for climate change mitigation and understanding energy-saving technical change in terms of observed factor quantities. We show that with time-varying capital equipment and energy substitutability, changes in observed inputs alone can account for most of the variations in the income share of energy over the ...
Working Paper
The Missing Tail Risk in Option Prices
This paper contributes to the literature on deviations from rational expectations in financial markets and to the literature on evaluating density forecasts. We first develop a novel statistic to evaluate the overall accuracy of distributional forecasts, and find two methods that yield accurate distributional forecasts. We then propose another statistic to examine the relative accuracy over the entire distribution range. Our results indicate more oil price realizations in the left tail than predicted. We argue that this finding points to a persistent behavioral forecasting bias and a ...