This paper analyzes the asset pricing implications of commonly-used portfolio management contracts linking the compensation of fund managers to the excess return of the managed portfolio over a benchmark portfolio. The contract parameters, the extent of delegation and equilibrium prices are all...

This paper constructs a representative agent supporting the equilibrium allocation in event-tree economies with time-additive preferences and possibly incomplete securities markets. If the equilibrium allocation is Pareto optimal, this construction gives the usual linear welfare function....

This paper examines the individual’s consumption and investment problem when labor income follows a general bounded process and the dollar amounts invested in the risky assets are constrained to take values in a given nonempty, closed, convex cone. Short sale constraints, as well as incomplete...

Value at Risk (VaR) has emerged in recent years as a standard tool to measure and control the risk of trading portfolios.Yet,existing theoretical analyses of the optimal behavior of a trader subject to VaR limits have produced a negative view of VaR as a risk-control tool. In particular,VaR...

This paper examines the individual’s consumption and investment problem when labor income follows a general bounded process and the dollar amounts invested in the risky assets are constrained to take values in a given nonempty, closed, convex cone. Short sale constraints, as well as incomplete...

We examine the extent to which an investor's tastes and beliefs can be jointly recovered from knowledge of his/her consumption choice. More precisely, we assume that the investor's preferences admit an expected utility representation, but with subjective (unknown) probabilities, and investigate...