We consider portfolios whose returns depend on at least three variables and show the effect of the correlation structure on the probabilities of the extreme outcomes of the portfolio return, using a multivariate binomial approximation. the portfolio risk is then managed by using derivatives. We...

We build a multi-factor, no-arbitrage model of the term structure of spot interest rates. The stochastic factors are the short-term interest rate and the premia of the futures rates over the short-term interest rates.(...)

We present a necessary and sufficient condition on an agent’s utility function for a simple mean preserving spread in an independent background risk to increase the agent’s risk aversion (incremental risk vulnerability). Gollier and Pratt (1996) have shown that declining and convex risk...

In this paper, we derive an equilibrium in which some investors buy call/put options on the market portfolio while others sell them. Also, some investors supply and others demand forward contracts. Since investors are assumed to have similar risk-averse preferences, the demand for these...

The choice of an agent between risky and riskless assets is complicated by the existence of idiosyncratic risk. In this paper the agent chooses state-dependent shares of aggregate marketable income (a sharing rule) to provide a partial hedge against the idiosyncratic risk. The agent's Utility...

In this paper, we derive an equilibrium in which some investors buy call/put options on the market portfolio while others sell them. Since investors are assumed to have similar risk-averse preferences, the demand for these contracts is not explained by differences in the shape of utility...

This paper examines the convexity bias introduced by pricing interest rate swaps off the Eurocurrency futures curve and the market's adjustment of this bias in prices over time. The convexity bias arises because of the difference between a futures contract and a forward contract on interest...

We build a no-arbitrage model of the term structure of interest rates using two stochastic factors, the short-term interest rate and the premium of the futures rate over the short-term interest rate. The model provides and extension of the lognormal interest rate model of Black and Karasinski...