We study portfolio selection in a one-period financial market with an Expected Shortfall (ES) constraint. Unlike in classical mean-variance portfolio selection, it can happen that no efficient portfolios exist. We call this situation regulatory arbitrage and show that the presence or absence of...

This paper studies mean-risk portfolio selection in a one-period financial market, where risk is quantified by a star-shaped risk measure ρ. We introduce two new axioms: weak and strong sensitivity to large losses. We show that the first axiom is key to ensure the existence of optimal...

In this article, we consider the optimal investment-consumption problem for an agent with preferences governed by Epstein-Zin stochastic differential utility who invests in a constant-parameter Black-Scholes-Merton market.The paper has three main goals: first, to provide a detailed introduction...

There are two major streams of literature on the modeling of financial bubbles: the strict local martingale framework and the Johansen-Ledoit-Sornette (JLS) financial bubble model. Based on a class of models that embeds the JLS model and can exhibit strict local martingale behavior, we clarify...

We study how trading costs are reflected in equilibrium returns. To this end, we develop a tractable continuous-time risk-sharing model, where heterogeneous mean-variance investors trade subject to a quadratic transaction cost. The corresponding equilibrium is characterized as the unique...

We study risk-sharing economies where heterogenous agents trade subject to quadratic transaction costs. The corresponding equilibrium asset prices and trading strategies are characterised by a system of nonlinear, fully-coupled forward-backward stochastic differential equations. We show that a...