I model the relation between corporate currency exposure and fundamental variables like demand elasticities and operating cost structure. The currency location of a firm's operating costs may be in the home currency, the foreign currency, or partially in each. I start with a single-firm setting...

We model a firm's unlevered beta in terms of elementary microeconomic variables. The source of uncertainty is a shock to demand. A firm decides on capital before the shock, and on labor, output, and price after the shock. Some insights are: 1) with decreasing returns to scale of production, beta...

A two-factor Global Capital Asset Pricing Model, where the factors are the global market portfolio and a currency index, is described and illustrated. The model is consistent with the empirical evidence of a priced currency index factor by Ferson and Harvey [1993, 1994]. The model and...

I construct examples of valuing insurance loss liabilities with asset pricing models, comparing the Rubinstein-Leland model with the better-known CAPM. The two models give different values only if the loss payment is asymmetric and correlated with the market portfolio, conditions which can...