We derive a theoretical asset-pricing model for derivative contracts that allows for expected liquidity and liquidity risk, and estimate this model for the market of credit default swaps (CDS). Our model extends the LCAPM of Acharya and Pedersen (2005) to a setting with derivative instruments...

Jump and volatility risk are important for understanding equity returns, option pricing and asset allocation. This paper is the first to study international integration of markets for jump and volatility risk, using data on index options for each of the three main global markets: US S&P 500...

Using a new dataset of currency option prices, we study the evolution of investor confidence in 1992-1998 over the chance of individual currencies to converge to the Euro. Convergence risk, which may reflect uncertainty over policy commitment as well as exogenous fundamentals, induces a level of...

We propose a class of stochastic volatility (SV) option pricing models that is more flexible than the more conventional models in different ways. We assume the conditional variance of the stock returns to be driven by an affine function of an arbitrary number of latent factors, which follow...

We study risk sharing between generations for a variety of realistic collective funded pension schemes, where pension benefits and contributions may depend on the funding ratio and the asset returns. The collective pension schemes organizing intergenerational risk sharing are optimized with...

We investigate the impact of owner-occupied housing on financial portfolio and mortgage choice under stochastic inflation and real interest rates. To this end we develop a dynamic framework in which investors can invest in stocks and bonds with different maturities. We use a continuous-time...

We develop a new methodology to estimate abnormal performance and risk exposure of non-traded assets from cash flows. Our methodology extends the standard internal rate of return approach to a dynamic setting. The small-sample properties are validated using a simulation study. We apply the...