Frequently, dynamic hedging strategies minimizing risk exposure are not given in closed form, but need to be approximated numerically. This makes it difficult to estimate residual hedging risk, also called basis risk, when only imperfect hedging instruments are at hand. We propose an easy to...

This paper employs a standard asset pricing model to derive theoretical volatility measures in a setting that allows for varying degrees of investor information about the dividend process. We show that the volatility of the price–dividend ratio increases monotonically with investor information...

In this paper, we develop lower bounds on the variance of the permanent component and the transitory component, and on the variance of the ratio of the permanent to the transitory components of SDFs. Exactly solved eigenfunction problems are then used to study the empirical attributes of asset...