We introduce a method that relies exclusively on Monte Carlo simulation in order to compute optimal portfolios. Our method is completely general and only requires complete markets and knowledge of the dynamics of the security processes. It is precise and easy to implement. It can be applied...

We study the portfolio selection problem of an investor who can optimally exert costly effort for more income. The possibility of generating more income, if necessary, increases the risk-taking appetite of the investor. We find the optimal allocation to the risky security as a proportion of...

Introduction to the Economics and Mathematics of Financial Markets fills the longstanding need for an accessible yet serious textbook treatment of financial economics. The book provides a rigorous overview of the subject, while its flexible presentation makes it suitable for use with different...

This paper examines the effect of convexity in the corporate tax schedule on corporate investment decisions and tax burdens. Using a contingent-claims model, we show that greater tax convexity results in (i) earlier exit, (ii) delayed investment (except for small entry cost), and (iii) reduced...

The paper considers the top Lyapunov exponent of a two-dimensional linear stochastic differential equation. The matrix coefficients are assumed to be functions of an independent recurrent Markov process, and the system is a small perturbation of a nilpotent system. The main result gives the...

We study the impact of changes in U.S. monetary policy on the equity returns of real estate-related industries. We find that, over the 1989-2005 sample period covered in our study, a hypothetical unexpected rate cut of 25 basis points (bps) is associated with an increase of about 170 bps in the...