This paper shows that a stock market is evolutionary stable if andonly if stocks are evaluated by expected relative dividends. Any othermarket can be invaded by portfolio rules that will gain market wealthand hence change the valuation. In the model the valuation of assetsis given by the wealth...

In the standard real options approach to investment under uncertainty, agents formulate optimal policies under the assumptions of risk neutrality or perfect capital markets. However in most situations, corporate executives face incomplete markets either because they receive compensation packages...

We study the dynamic utility indifference value process p(X) when the usefulness of X is evaluated via a dynamic monetary concave utility functional (DMCUF) instead of von Neumann/Morgenstern expected utility. A DMCUF is minus a dynamic convex risk measure. The key tools for our investigations...

This paper investigates the impact of heterogeneous beliefs of professional investors on the currency options market. Using a unique data set with detailed information on the foreign-exchange forecasts of about 50 market participants over more than ten years, we construct an empirical proxy for...

In this paper we solve an intertemporal portfolio problem with correlation risk, using a new approach for the simultaneous modeling of stochastic correlation and volatility. The solutions of the model are in closed form and include an optimal portfolio demand for hedging correlation risk. We...

This paper shows that in financial markets with endogenous asset supply and demand, both rational and noise traders do coexist in the long run. The finding implies that financial markets are neither informationally nor allocationally efficient. While rational traders have a consistently higher...

This paper derives an analytic expression for the distribution of the average volatility in the stochastic volatility model of Hull and White. This result answers a longstanding question, posed by Hull and White (Journal of Finance 42, 1987), whether such an analytic form exists. Our findings...

This paper derives fundemental arbitrage pricing results in finite dimensions in a simple unified framework using Tucker's theorem of the alternative. Frictionless results plus those with dividends, periodic interest payments, transaction costs, different interest rates for lending and...

Due to their underlying assumptions, the standard concepts of risk aversion and preference for the present are generally defined separately and represented by scalar measures, and this implies many shortcomings. More specifically, if measured by a scalar, the risk aversion remains unchanged,...

We study arbitrage opportunities in diverse markets as introduced by R. Fernholz in [2]. By a change of measure technique we are able to generate a variety of diverse markets. The construction is based on an absolutely continuous but non-equivalent measure change which implies the existence of...