Browsing by Author "Huang, Kevin Xiaodong"

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    Infinite-Horizon Optimal Hedging Under Cone Constraints
    (Center for Economic Research, Department of Economics, University of Minnesota, 1999-01) Huang, Kevin Xiaodong
    We address the issue of hedging in infinite horizon markets with a type of constraints that the set of feasible portfolio holdings forms a convex cone. We show that the minimum cost of hedging a liability stream is equal to its largest present value with respect to admissible stochastic discount factors, thus can be determined without finding an optimal hedging strategy. We solve for an optimal hedging strategy by solving a sequence of independent one-period hedging problems. We apply the results to a variety of trading restrictions and also show how the admissible stochastic discount factors can be characterized.
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    Staggered Contracts and Business Cycle Persistence
    (Center for Economic Research, Department of Economics, University of Minnesota, 1999-01) Huang, Kevin Xiaodong; Liu, Zheng
    Staggered price and staggered wage mechanisms are commonly viewed similar in generating persistent real effects of monetary shocks. In this paper, we distinguish these two mechanisms with individuals' optimizing behavior being explicitly taken into account. We show that, although the dynamic price and wage setting equations are alike, a key parameter governing persistence in these two equations is linked to the underlying preferences and technologies in very different ways. Consequently, the two mechanisms have quite different implications on persistence. While the staggered price mechanism by itself is incapable, the staggered wage mechanism has a much greater potential of generating persistence.
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    Valuation and Asset Pricing in Infinite Horizon Sequential Markets with Portfolio Constraints
    (Center for Economic Research, Department of Economics, University of Minnesota, 1998-10) Huang, Kevin Xiaodong
    There are three ways of measuring the value of a payoff stream in sequential markets with portfolio constraints: the market price, the replication price, and the fundamental value. In this paper we characterize constraints for which these measures coincide in the absence of arbitrage, and in equilibrium. We show that the replication price functional is linear in finite horizon markets, but only sub-linear in general in infinite horizon unless markets are complete. We provide constraints for which the linearity holds regardless whether markets are complete or incomplete. Applying a duality technique, we determine an optimal replicating strategy through solving a sequence of independent linear programs. These results do not depend on investors' preferences (other than monotonicity), probability beliefs, endowments of goods, or supply of assets.