This article shows that, as long as agents are required to maintain positivewealth, the presence of portfolio constraints may give rise to asset pricingbubbles in equilibrium even if there are unconstrained agents in the economywho can benefit from the induced arbitrage opportunity. Furthermore,...

This paper studies the wealth dynamics of investors holding self-nancing portfolios in a continuous-time model of a nancial market.Asset prices are endogenously determined by market clearing. Wederive results on the asymptotic dynamics of the wealth distributionand asset prices for constant...

We study the exponential utility indifference valuation of a contingentclaim H when asset prices are given by a general semimartingale S. Under mildassumptions on H and S, we prove that a no-arbitrage type condition is fulfilled ifand only if H has a certain representation. In this case, the...

In this paper I analyze how debt structure and the strategic interaction betweenshareholders and creditors in the event of default a¤ect expected stock returns. By en-dogenizing shareholders decision to default, the model generates new predictions linking…rm characteristics to expected stock...

This paper analyzes competition between mutual funds in a multiple fundsversion of the model of Hugonnier and Kaniel [18]. We characterize the setof equilibria for this delegated portfolio management game and show thatthere exists a unique Pareto optimal equilibrium. The main result of thispaper...

Stein’s lemma is extended to the case where asset returns have skewed and leptokurticdistributions. The risk premium is still the negative of the covariance of theexcess return with the log SDF.[...] Paul Söderlind]

A simple consumption-based two-period model is used to study the (theoretical)effects of disagreement on asset prices. Analytical and numerical results showthat individual uncertainty has a much larger effect on risk premia than disagreementif (i) the risk aversion is reasonably high and (ii)...

Nominal and real U.S. interest rates (1997–2007) are combined with inflationexpectations from the Survey of Professional Forecasters to calculate time series ofrisk premia. It is shown that survey data on inflation and output growth uncertainty,as well as a proxy for liquidity premia can...

In this paper, we consider the coherent theory of (epistemic) uncertainty ofWalley, in whichbeliefs are represented through sets of probability distributions, and we focus on the problemof modeling prior ignorance about a categorical random variable. In this setting, it isa known result that a...

We consider an homogeneous class of assets, whose returns are driven by an unobservablefactor. We derive approximated prediction and pricing formulas for the future factorvalues and their proxies, when the size n of the class is large. Up to order 1=n, these approximationsinvolve solely...