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Expected Life-Time Utility and Hedging Demands In a Partially Observable Economy

Lundtofte, Frederik - Institut für Schweizerisches Bankwesen <Zürich> - 2007

This paper analyzes the expected life-time utility and the hedging demands in an exchange only, representative agent general equilibrium under incomplete information. We derive an expression for the investors expected life-time utility, and analyze his hedging demands for intertemporal changes...

Persistent link: https://www.econbiz.de/10005858506

The Quality of Public Information and the Term Structure of Interest Rates

Lundtofte, Frederik - Institut für Schweizerisches Bankwesen <Zürich> - 2007

This paper analyzes the term structure of interest rates in an exchange-only Lucas (1978) economy where consumers learn about a stochastic growth rate through observations of the endowment process and an external public signal. We allow for deluded consumers, who exaggerate the degree of...

Persistent link: https://www.econbiz.de/10005858508

Can an Estimation Factor Help Explain Cross-Sectional Returns?

Lundtofte, Frederik - Institut für Schweizerisches Bankwesen <Zürich> - 2006

We show in a theoretical model that the expected excess return on any asset depends on its covariance not only with the market portfolio, but also with changes in the representative agents estimate. We test our model by using GMM and compare it to the Fama-French model. The results suggest that...

Persistent link: https://www.econbiz.de/10005858510

The Effect of Information Quality on Optimal Portfolio Choice

Lundtofte, Frederik - Institut für Schweizerisches Bankwesen <Zürich> - 2005

Three types of agents acting on different information sets are considered: fully informed agents, insiders, and outsiders. Differences in information quality are shown to affect the properties of their optimal portfolios. For an outsider, the share of wealth invested in the stock is decreasing...

Persistent link: https://www.econbiz.de/10005858588

Default Correlation in a Markov-Chain Credit Migration Model with Contagion Effects

Gibson, Rajna; Valchev, Stoyan - Institut für Schweizerisches Bankwesen <Zürich> - 2005

In this paper, we extend the earlier results of Jeanblanc and Valchev (2003) in the single name case to the case of multiple defaults of the issuers in a concentrated industry or homo- geneous bond market. We provide solutions for the pairwise default correlations and credit spreads in an...

Persistent link: https://www.econbiz.de/10005858812

Optimal Credit Limit Management

Leippold, Markus; Ebnoether, Silvan; Vanini, Paolo - Institut für Schweizerisches Bankwesen <Zürich>; … - 2003

Credit limit management is of paramount importance for successful short-term credit-risk management, even more so when the situation in credit and ﬁnancial markets is tense. We consider a continuous-time model where the credit provider and the credit taker interact within a game-theoretic...

Persistent link: https://www.econbiz.de/10005858857

Arbitrage in Stationary Markets

Evstigneev, Igor; Kapoor, Dhruv - Institut für Schweizerisches Bankwesen <Zürich> - 2007

We analyse questions of arbitrage in financial markets in which asset prices change in time as stationary stochastic … framework of this model, we find conditions that are necessary and sufficient for the absence of arbitrage opportunities. We …

Persistent link: https://www.econbiz.de/10005857775

Arbitrage-free market models for option prices

Wissel, Johannes - Institut für Schweizerisches Bankwesen <Zürich> - 2007

In this paper we construct arbitrage-free market models of stochastic volatility type for one stock, one bank account … of dynamic arbitrage in the market can be characterized in terms of drift restrictions on the model coefficients. Most … provide a class of explicit examples satisfying the no-arbitrage conditions. This allows us to construct arbitrage-free multi …

Persistent link: https://www.econbiz.de/10005857780

Efficient Estimation of a Semiparametric Characteristic-Based Factor Model of Security Returns

Connor, Gregory; Hagmann, Matthias; Linton, Oliver - Institut für Schweizerisches Bankwesen <Zürich> - 2007

This paper develops a new estimation procedure for characteristic-based factor models of security returns. We treat the factor model as a weighted additive nonparametric regression model, with the factor returns serving as time-varying weights, and a set of univariate non-parametric functions...

Persistent link: https://www.econbiz.de/10005857787

Co-monotonicity of optimal investments and the design of structured financial products

Rieger, Marc Oliver - Institut für Schweizerisches Bankwesen <Zürich> - 2008

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...

Persistent link: https://www.econbiz.de/10005858203