Contracts with embedded prepayment/extension options are subject to behavioral risk, due to the unpredictable exercise … in future cash flows. In this paper, we propose a general framework to model behavioral risk by exploiting a parallel … with credit risk modeling. Early redemption probabilities are assimilated to default probabilities and investor decisions …

We study the representative consumer's risk attitude and efficient risk-sharing rules in a single-period, single …-good economy in which consumers have homogeneous probabilistic beliefs but heterogeneous risk attitudes. We prove that if all … consumers have convex absolute risk tolerance, so must the representative consumer. We also identify a relationship between the …

We study the problem of optimal timing to buy/sell derivatives by a risk-averse agent in incomplete markets. Adopting … the agent's risk preferences. Our results extend recent work on indifference valuation of American options, as well as the …

for both one-period and long-run risk return tradeoff in a cross-section of test assets. This factor is identified as an … additional source of consumption risk in a structural model where investors are endowed with recursive preferences over … with shorter maturities, thus generating higher expected return. My estimation implies reasonable magnitude of risk …

This paper examines the unique ability of The Model: a structural credit risk model proposed in Buellesbach (2015), to …

characterized by falling volatility. Risk premia are substantially less cyclical and returns less predictable than reported in the …

This paper tests the validity of a single-factor (market) model to price consumer lending risk. It classifies US … revolving credit as default risk, show that the intercepts are indistinguishable from zero in 22 portfolios, and the average … default rate of a portfolio increases with its beta. The additional risk factors based on unemployment and income growth …

the unconditional cross-sectional moments of household consumption growth and the moments of the risk free rate, equity … premium, price-dividend ratio, and aggregate dividend and consumption growth. The model-implied risk free rate and price …-dividend ratio are pro-cyclical while the market return has countercyclical mean and variance. Finally, household consumption risk …