We model a risk-averse firm owner who wants to maximize the inter-temporal expected utility of firm's dividends. The optimal dynamic control problem is characterized by two stochastic state variables: the equity value, and profitability (ROA) of the firm. According to the empirical evidence, we...

This paper evaluates the solvency of a portfolio of assets and liabilities of an insurer subject to both longevity and financial risks. Liabilities are evaluated at fair-value and, as a consequence, interest-rate risk can affect both the assets and the liabilities. Longevity risk is described...

We study tax evasion in a dynamic macroeconomic model where utility-maximizing entrepreneurs use capital to produce or buy bonds, depending on their firm's stochastic productivity. The government provides productivity-enhancing public goods financed through taxes and bond issuance. Entrepreneurs...

The adoption of copula functions is suggested in order to price bivariate contingent claims. Copulas enable the marginal distributions extracted from vertical spreads in the options markets to be imbedded in a multivariate pricing kernel. It is proved that such a kernel is a copula function, and...