We prove that under very weak conditions optimal financial products have to be co-monotone with the inverted state price density. Optimality is meant in the sense of the maximization of an arbitrary preference model, e.g. Expected Utility Theory or Prospect Theory. The proof is based on methods...

This paper studies modelling and existence issues for market models of option prices in a continuous-time framework with one stock, one bond and a family of European call options for one fixed maturity and all strikes. After arguing that (classical) implied volatilities are ill-suited for...

This study investigates loss aversion when the reference point is state-dependent.Using a state-dependent structure, prospects are more attractive if they depend positively on the reference point and are less attractive in case of negative dependence. In addition, the structure is neutral in the...

A new class of risk measures called cash sub-additive risk measures is introduced to assess the risk of future financial, non-financial and insurance positions. The debated cash additive axiom is relaxed into the cash sub-additive axiom to preserve the original difference between the numeraire...

This paper uses a new approach to determine the fraction of truly skilled managers among the universe of U.S. domestic-equity mutual funds over the 1975 to 2006 period. We develop a simple technique that properly accounts for “false discoveries,” or mutual funds which exhibit significant...

We consider consistent tests for stochastic dominance efficiency at any order of a given portfolio with respect to all possible portfolios constructed from a set of assets. We justify block bootstrap approaches to achieve valid inference in a time series setting. The test statistics are computed...

We propose a new multivariate GARCH model with Dynamic Conditional Correlations that extends previous models by admitting multivariate thresholds in conditional volatilitiesand correlations. The model estimation is feasible in large dimensions and the positive definiteness of the conditional...

We propose a multivariate nonparametric technique for generating reliable short-term historical yield curve scenarios and confidence intervals. The approach is based on a Functional Gradient Descent (FGD) estimation of the conditional mean vector and covariance matrix of a multivariate interest...

We consider testing for correct specification of a nonparametric instrumental variable regression. In this ill-posed inverse problem setting, the test statistic is based on the empirical minimum distance criterion corresponding to the conditional moment restriction evaluated with a Tikhonov...

This paper argues that observations of non-stationary choice behavior need notnecessarily imply specific properties of the individual’s discount function. As weshow, the observed “anomalies” in intertemporal choice can alternatively be explained by an individual’s perception of the risk...