Showing 1 - 10 of 65
In this paper we solve an intertemporal portfolio problem with correlation risk, using a new approach for the simultaneous modeling of stochastic correlation and volatility. The solutions of the model are in closed form and include an optimal portfolio demand for hedging correlation risk. We...
Persistent link: https://www.econbiz.de/10005858523
In a continuous-time, pure exchange economy on a finite horizon financial agents display ambiguity aversion for a neighborhood of indistinguishable model specifications that are constrained in their relative entropy from a given reference model. We characterize equilibrium optimal consumption-...
Persistent link: https://www.econbiz.de/10005858525
We develop a continuous time general equilibrium yield curve model under ambiguity aversion. A moderate level of ‘aggregate ambiguity’ affects significantly the term structure and can drive the prices of common interest rate derivatives toward the patterns observed in fixed income markets....
Persistent link: https://www.econbiz.de/10005858865
We conduct a laboratory experiment to study whether people in-tuitively use real-option strategies in a dynamic investment setting.The participants were asked to play as an oil manager and make pro-duction decisions in response to a simulated mean-reverting oil price.Using cluster analysis,...
Persistent link: https://www.econbiz.de/10005868528
This paper develops a liquidity measure tailored to the foreign exchange (FX) market, quanties the amount of commonality in liquidity across dierent exchange rates, and determines theextent of liquidity risk premiums embedded in FX returns. The new liquidity measure utilizesultra high frequency...
Persistent link: https://www.econbiz.de/10005868531
This paper reviews important concepts and methods that are useful for hypothesis testing.First, we discuss the Neyman-Pearson framework. Various approaches to optimalityare presented, including finite-sample and large-sample optimality. Then, some of the mostimportant methods are summarized, as...
Persistent link: https://www.econbiz.de/10005868540
Fund-of-funds (FoF) managers face the task of selecting a (relatively) small number ofhedge funds from a large universe of candidate funds. We analyse whether such a selectioncan be successfully achieved by looking at the track records of the available funds alone,using advanced statistical...
Persistent link: https://www.econbiz.de/10005868542
This chapter surveys theoretical research on the long-term performanceof xed-mix investment strategies. These self-nancing strategies rebalancethe portfolio over time so as to keep constant the proportionsof wealth invested in various assets. The main result is that wealthcan be grown from...
Persistent link: https://www.econbiz.de/10005868580
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...
Persistent link: https://www.econbiz.de/10005868691
This paper examines the effects of capital gains taxation on firms’ investmentand financing decisions. We develop a real options model in which the timing ofinvestment, the decision to default, and the firm’s capital structure are endogenouslyand jointly determined. Our analysis demonstrates...
Persistent link: https://www.econbiz.de/10005868706