The paper considers the equilibrium effects of an institutional investor whose performance is benchmarked to an index. In a partial equilibrium setting, the objective of the institutional investor is modelled as the maximization of expected utility (an increasing and concave function, in order...

The 'trade-off theory' of capital structure predicts a positive relationship between earnings and leverage, contradictory to well established empirical evidence. Since corporate earnings are known to be mean reverting, we reformulate the trade-off model "with mean reverting earnings". We show...

In a context of complete financial markets where asset prices follow Ito's processes, we characterize the set of consumption processes which are optimal for a given stochastic differential utility (e.g. Duffie and Epstein (1992)) when beliefs are unknown. Necessary and sufficient conditions for...

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...

We conduct a controlled laboratory experiment where subjects dynamically choose their portfolio allocation between a safe and a risky asset. We first derive analytically the optimal allocation of an expected utility maximizer with HARA utility function. We then fit the experimental choices to...

We introduce a model that captures the main properties that characterize employee stock options (ESO). We discuss the likelihood of early voluntary ESO exercise, and the obligation to exercise immediately if the employee leaves the firm, except if this happens before options are vested, in which...