The solution to dynamic portfolio choice models can be formulated in terms of a value function by the Bellman principle of optimality, which reduces the multi-period optimal policy choice problem to a sequence of one-period maximization problems. For two adjacent periods, economists compute the...

This paper studies the optimal life cycle consumption and portfolio choice problem taking into account annuity risk due to stochastic interest rates. When the purchase of annuities is restricted to the retirement date, the annuitant is exposed to the risk of meeting low interest rates at the...

Recently, Ross (2015) showed that the real-world probability distribution of a discrete Markovian state variable can be recovered from observed option prices. The so-called recovery theorem follows from Perron-Frobenius matrix theory when the pricing kernel is transition independent. In this...

In this paper, we develop a general pricing framework for dividend derivatives, which covers different specifications for state-space models, pricing kernels, and dividends. For certain special cases within an affine jump-diffusion setting, we derive transform-based pricing formulas for general...