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The Froot-Stein model revisited

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We investigate the model of Froot & Stein (1998), a model which has very strong implications for risk management. We argue that their conclusions are too strong and need to be qualified. We also argue that their analysis is incorrect and incomplete. Specifically, there are some unusual consequences of their model, which may be linked to the chosen pricing formula.

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en

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http://eprints.lse.ac.uk/2697/

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