This paper develops a decentralized theory that determines the fair value of the yield-to-maturity of a bond or bond portfolio based purely on the near-term dynamics of the yield itself. The theory decomposes the yield into three components: its expected change, its risk premium, and its...

Asset pricing tests often replace ex ante return expectation with ex post realization. The large deviation between the two drastically weakens the power of these tests. This paper proposes to use analysts consensus price target for a stock as the market expectation of the stock's future price to...

We show how to price and replicate a variety of barrier-style claims written on the log price X and quadratic variation <X> of a risky asset. Our framework assumes no arbitrage, frictionless markets and zero interest rates. We model the risky asset as a strictly positive continuous semimartingale...</x>