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...

This paper uses a novel numerical optimization technique – robust optimization – that is well suited to solving the asset-liability management (ALM) problem for pension schemes. It requires the estimation of fewer stochastic parameters, reduces estimation risk and adopts a prudent approach...

Due to non-linear transaction costs, the fi nancial performance of a trading strategy decreaseswith portfolio size. Using a dynamic trading model a la Garleanu and Pedersen (2013), wederive closed-form formulas for the performance-to-scale frontier reached by competitive tradersendowed with a...

The purpose of this study is to assess the diversification benefits resulting from international asset allocation. In this study, we examine Capital Asset Pricing Model (CAPM) in its international context (ICAPM) using the monthly equity returns for 26 countries (18 developed and 8 emerging...

The economic recession of 2007-2009 proved to be a difficult period for most European economies. Poland was among the few countries that recorded positive gross domestic product (GDP) growth during that period. The main reason for its performance was that private consumption stimulated the GDP....

The volatilities of Treasury and time deposit markets comove with equity volatility quite heterogeneously over time, with correlations ranging from negative to positive, and marked by periods of rapid movement. What is the price of Treasury volatility or, say, that of the Eurodollar LIBOR? How...

Eurodollar deposit volatility comoves with equity volatility quite heterogeneously over time, with correlations ranging from negative to positive, and marked by periods of rapid movement. What is the price of time deposit volatility? How can we express this price in a model-free format? Despite...

Credit volatility correlates quite modestly with equity volatility. Currently, only backward-looking indexes for credit volatility exist. We derive model-free indexes of expected CDS index spread volatility that rely on CDS index option prices, which re ect the fair value of dedicated credit...

While CBOE's VIX index is widely acknowledged as a broad-based investor “fear gauge” for its strong inverse relationship with major equity indexes, one cannot necessarily expect it to translate to the level of future turbulence or investor risk aversion in fixed-income markets. Indeed,...

We investigate the general structure of optimal investment and consumption with small proportional transaction costs. For a safe asset and a risky asset with general continuous dynamics, traded with random and time-varying but small transaction costs, we derive simple formal asymptotics for the...