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Asset Pricing under Rational Learning about Rare Disasters

Koulovatianos, Christos; Wieland, Volker - C.E.P.R. Discussion Papers - 2011

This paper proposes a new approach for modeling investor fear after rare disasters. The key element is to take into account that investors' information about fundamentals driving rare downward jumps in the dividend process is not perfect. Bayesian learning implies that beliefs about the...

Persistent link: https://www.econbiz.de/10009201120

Strategic Asset Allocation in Money Management

Basak, Suleyman; Makarov, Dmitry - C.E.P.R. Discussion Papers - 2011

Money managers behave strategically when competing for fund flows within relatively small groups. We study strategic interaction between two risk-averse managers in continuous time, characterizing analytically their unique equilibrium dynamic investments. Driven by chasing and contrarian...

Persistent link: https://www.econbiz.de/10009144728

Dynamic Hedging in Incomplete Markets: A Simple Solution

Basak, Suleyman; Chabakauri, Georgy - C.E.P.R. Discussion Papers - 2011

Despite much work on hedging in incomplete markets, the literature still lacks tractable dynamic hedges in plausible environments. In this article, we provide a simple solution to this problem in a general incomplete-market economy in which a hedger, guided by the traditional minimum-variance...

Persistent link: https://www.econbiz.de/10009024486

The Impact of Changing Demographics and Pensions on The Demand for Housing and Financial Assets

Cerny, Ales; Miles, David K; Schmidt, Lubomir - C.E.P.R. Discussion Papers - 2005

Using a calibrated OLG model with several sources of uncertainty we find that the impact of ageing and of reform of social security upon the demand for housing and the level of owner occupation is substantial. The overall structure of household asset holdings – in particular the split between...

Persistent link: https://www.econbiz.de/10005662297

A Model of Credit Risk, Optimal Policies and Asset Prices

Basak, Suleyman; Shapiro, Alex - C.E.P.R. Discussion Papers - 2002

This Paper studies the optimal policies of borrowers (firms or individuals) who may default subject to default costs, and analyses the asset pricing implications. Borrowers defaulting under adverse economic conditions may, despite incurring default costs, emerge as wealthier than non-borrowers...

Persistent link: https://www.econbiz.de/10005788927

Dynamic Mean-Variance Asset Allocation

Basak, Suleyman; Chabakauri, Georgy - C.E.P.R. Discussion Papers - 2009

Mean-variance criteria remain prevalent in multi-period problems, and yet not much is known about their dynamically optimal policies. We provide a fully analytical characterization of the optimal dynamic mean-variance portfolios within a general incomplete-market economy, and recover a simple...

Persistent link: https://www.econbiz.de/10005656376

On the Role of Arbitrageurs in Rational Markets

Basak, Suleyman; Croitoru, Benjamin - C.E.P.R. Discussion Papers - 2004

markets. Arbitrage opportunities between redundant risky assets arise endogenously in an economy populated by rational …, heterogeneous investors facing restrictions on leverage and short sales. An arbitrageur, indulging in costless, riskless arbitrage … arbitrageur lacks market power, they always take on the largest arbitrage position possible. When the arbitrageur behaves …

Persistent link: https://www.econbiz.de/10005123691

Drivers of Structural Change in Cross-Border Banking Since the Global Financial Crisis

Bremus, Franziska; Fratzscher, Marcel - C.E.P.R. Discussion Papers - 2014

importance of regulatory arbitrage as a driver of cross-border bank flows since the global financial crisis. However, in the euro … area, arbitrage in capital stringency was linked to lower cross-border lending since the crisis. …

Persistent link: https://www.econbiz.de/10011145418

The Dynamics of Financially Constrained Arbitrage

Gromb, Denis; Vayanos, Dimitri - C.E.P.R. Discussion Papers - 2015

We develop a model of financially constrained arbitrage, and use it to study the dynamics of arbitrage capital … the dynamics of arbitrage activity are self-correcting: following a shock that depletes arbitrage capital, profitability … trades, although arbitrageurs cut their positions in these trades the least. When arbitrage capital is more mobile across …

Persistent link: https://www.econbiz.de/10011184076

Performance Maximization of Actively Managed Funds

Guasoni, Paolo; Huberman, Gur; Wang, Zhenyu - C.E.P.R. Discussion Papers - 2010

Ratios that indicate the statistical significance of a fund’s alpha typically appraise its performance. A growing literature suggests that even in the absence of any ability to predict returns, holding options positions on the benchmark assets or trading frequently can significantly enhance...

Persistent link: https://www.econbiz.de/10008468707

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