We propose a novel model-free approach to obtain the joint risk-neutral distribution among several assets that is consistent with market prices of options on these assets and their weighted index. In an empirical application, we use options on the S&P 500 index and its nine industry sectors. The...

This paper develops a new approach for variance trading. We show that the discretely-sampled realized variance can be robustly replicated under very general conditions, including when the price can jump. The replication strategy specifies the exact timing for rebalancing in the underlying. The...

In this paper we study the asset-liability management of an insurance company selling “participating contracts”. Participating contracts are typical insurance policies sold worldwide.The payoff of a participating policy is linked to the portfolio or the surplus of the insurance company. We...

The bounds for risk measures of a portfolio when its components have known marginal distributions but the dependence among the risks is unknown are often too wide to be useful in practice. Moreover, availability of additional dependence information, such as knowledge of some higher-order...

Assuming that agents' preferences satisfy first-order stochastic dominance, we show how the Expected Utility paradigm can rationalize all optimal investment choices: the optimal investment strategy in any behavioral law-invariant (state-independent) setting corresponds to the optimum for an...

We derive the optimal portfolio choice for an investor who behaves according to Cumulative Prospect Theory. The study is done in a one-period economy with one risk-free asset and one risky asset, and the reference point corresponds to the terminal wealth arising when the entire initial wealth is...

We first study mean-variance efficient portfolios when there are no trading constraints and show that optimal strategies perform poorly in bear markets. We then assume investors use a stochastic benchmark (linked to the market) as a reference portfolio. We derive mean-variance efficient...

In standard portfolio theories such as Mean-Variance optimization, Expected Utility Theory, Rank Dependent Utility Theory, Yaari's Dual Theory and Cumulative Prospect Theory, the worst outcomes for optimal strategies occur when the market declines (e.g, during crises), which is at odds with the...