The most familiar interpretation for the large and unpredictable swings that characterize common stock price indices is that price changes represent the efficient discounting of quot;new informationquot; It is remarkable given the popularity of this interpretation that it has never been...

Recent advances in financial theory have created an understanding of the environments in which a real security can be synthesized by a dynamic trading strategy in a risk free asset and other securities. We contend that there is a crucial distinction between a synthetic security and a real...

A martingale approach is used to characterize general equilibrium in the presence of portfolio insurance. Insurers sell to non-insurers in bad states, and general equilibrium requires that the risk premium rises to induce non-insurers to increase their holdings. We show that portfolio insurance...