Financial Asset Pricing Theory offers a comprehensive overview of the classic and the current research in theoretical asset pricing. Asset pricing is developed around the concept of a state-price deflator which relates the price of any asset to its future (risky) dividends and thus incorporates...

We solve, in closed form, a stock-bond-cash portfolio problem of a risk- and ambiguity-averse investor when interest rates and the inflation rate are stochastic. The expected inflation rate is unobservable, but the investor can learn about it from observing realized inflation and stock and bond...

type="main" <title type="main">ABSTRACT</title> <p>We derive the optimal compensation contract in a principal–agent setting in which outcome is used to provide incentives for both effort and risky investments. To motivate investment, optimal compensation entails rewards for high as well as low outcomes, and it is...</p>

We analyze the optimal stock-bond portfolio under both learning and ambiguity aversion. Stock returns are predictable by an observable and an unobservable predictor, and the investor has to learn about the latter. Furthermore, the investor is ambiguity-averse and has a preference for investment...

Generalizing Cox, Ingersoll, and Ross (1979), this paper defines the stochastic duration of a bond in a general multi-factor diffusion model as the time to maturity of the zero-coupon bond with the same relative volatility as the bond. Important general properties of the stochastic duration...

We consider the optimal asset allocation choice of an investor who can invest in <p> cash (a money market bank account), nominal bonds, and stocks (the stock index). <p> The investor faces an incomplete market setting and is not able to perfectly hedge <p> long run real interest rate risk using the...</p></p></p>

We study the consumption and investment choice of a time-additive power utility <p> investor and demonstrate how theinvestor should optimally hedge changes in the op- <p> portunity set. The investor is allowed to invest in stocks and interest rate dependent <p> assets in a continuous-time dynamically...</p></p></p>