This paper derives an equilibrium asset pricing model with liquidity risk. Liquidity risk is modeled as a stochastic quantity impact on the price from trading, where the size of the impact depends on trade size. Under a mild set of assumptions, we prove that an equilibrium price process exists...

Based on a reduced-form model of credit risk, we explore mispricing in the CDS spreads of North American companies and its economic content. Specifically, we develop a trading strategy using the model to trade out of sample market-neutral portfolios across the term structure of CDS contracts....

This paper studies the hedging effectiveness of interest rate swaps using different reference rates for eliminating interest rate risk from floating rate loans. Two different reference rates are studied. The first is a reference rate whose maturity, ∆, matches the payment interval of the...

This paper studies optimal index design to both facilitate hedging and alleviate illegal manipulation in a competitive equilibrium paradigm, modified to deal with manipulation. Specifically, a large trader is trading both derivatives and stocks, and effectively hides her trades behind the...

This paper models how chatroom traders, forming a coalition via social media platforms, influence the stock price in the presence of large and strategic short sellers. The economic consequences of this dynamic game are studied in a micro-founded quasi-competitive equilibrium framework, which is...

This book is a collection of original papers by Robert Jarrow that contributed to significant advances in financial economics. Divided into three parts, Part I concerns option pricing theory and its foundations. The papers here deal with the famous Black-Scholes-Merton model, characterizations...

This paper studies an equilibrium model with heterogeneous agents, asset price bubbles, and trading constraints. Market liquidity is modeled as a stochastic quantity impact from trading on the price. Bubbles are larger in liquid markets and when trading constraints are more binding. Systemic...

This paper shows how to uniquely price non-traded assets using no-arbitrage in an otherwise friction-less market setting. The approach requires the assumption that the hedging error, properly defined, is non-priced or idiosyncratic risk. This methodology can be applied to private loans, illiquid...

The purpose of this paper is to review the literature on inflation-adjusted bonds, swaps, and derivatives. The methodology for valuation and risk management of these securities is an application of the foreign currency extension of a standard HJM term structure model. The two “currencies” in...