We analyze numerically the superreplication problem and the associatedhedging strategy in an illiquid binomial market. We prove theexistence of an optimal feedback strategy for European and barrier optionsand compute it numerically by means of a dynamic programmingprinciple. We exhibit that the...

We develop a method that allows one to compute incomplete-market equilibria routinely forMarkovian equilibria (when they exist). The main difficulty to be overcome arises from the setof state variables. There are, of course, exogenous state variables driving the economy but, in anincomplete...

We present results from the rst large-scale international surveyon risk preferences, conducted in 45 countries. We show substantialcross-country dierences in risk aversion, loss aversion and probabilityweighting. Moreover, risk attitudes in our sample depend not only oneconomic conditions, but...

Consider an investor trading dynamically to maximize expectedutility from terminal wealth. Our aim is to study the dependencebetween her risk aversion and the distribution of the optimal terminalpayo. Economic intuition suggests that high risk aversion leads to arather concentrated distribution,...

Recent crises have seen very large spikes in asset price risk without dramatic shiftsin fundamentals. We propose an explanation for these risk panics based on selffullling shifts in risk made possible by a negative link between the current assetprice and risk about the future asset price. This...

There is strong empirical evidence that the pricing kernel is Ushaped,which provides a way to explain the substantial coskewnesspremium. Existing studies typically use a polynomial approximationof the pricing kernel. Problematically, these polynomials have, inmost cases, increasing parts by...

Many statistical applications require an estimate of a covariance matrix and/or its inverse.When the matrix dimension is large compared to the sample size, which happensfrequently, the sample covariance matrix is known to perform poorly and may suffer fromill-conditioning. There already exists...

This paper examines the impact of agency conicts on corporate nancing decisions. Werst build a dynamic contingent claims model in which nancing policy results from a trade-obetween tax benets, contracting frictions, and agency conicts. In our setting, partially-entrenched managers set the rms'...

With hedge funds, issues such as finding common factors that definealternative strategies or the tracking of hedge funds have beendiscussed more or less recently in the financial literature. We proposehere the use of recent developments in estimation of factor modelsto unveil the five latent...