Recent studies have found unmeasured intangible capital to be large and important. In this paper we observe that by nature intangible capital is also very different from physical capital. We find it plausible to argue that the accumulation process for intangible capital differs significantly...

We solve analytically the Merton's problem of an investor with time-additive power utility. For general state dynamics, we prove existence of two power series representations of the relevant optimal policies and value functions, which hold for all admissible risk aversion parameters. We...

We study in a general perspective the partial equilibrium incentives and the general equilibrium asset pricing implications of Value-at-Risk (VaR) regulation in continuous time economies with intermediate consumption, stochastic opportunity set, and heterogenous attitudes to risk. Our findings...

We present a geometric approach to discrete time multiperiod mean variance portfolio opti-mization that largely simplifies the mathematical analysis and the economic interpretation of such model settings. We show that multiperiod mean variance optimal policies can be decom-posed in an orthogonal...

As early as 1934 Graham and Dodd conjectured that excess returns from value investment originate from a tendency of markets to converge towards fundamental values. This paper confirms their insights theoretically within the evolutionary finance model of Evstigneev, Hens, and Schenk-Hopp (2006)...

We study the exponential utility indifference valuation of a contingent claim B in an incomplete market driven by two Brownian motions. The claim depends on a nontradable asset stochastically correlated with the traded asset available for hedging. We use martingale arguments to provide upper and...

This paper studies modelling and existence issues for market models of option prices in a continuous-time framework with one stock, one bond and a family of European call options for one fixed maturity and all strikes. After arguing that (classical) implied volatilities are ill-suited for...

We apply perturbation theory to solve the optimal control problem of an investor with time-additive power utility over intermediate consumption and final wealth. Under general conditions we show existence of a power series representation for the prevailing optimal consumption and investment...

This paper studies modelling and existence issues for market models of stochastic implied volatility in a continuous-time framework with one stock, one bank account and a family of European options for all maturities with a fixed payoff function h. We first characterize absence of arbitrage in...

A generalized correlated random walk is a process X_k of partial sums of random variables Y_j such that (X,Y) forms a Markov chain. For a sequence X^n of such processes where each Y^n_j takes only two values, we prove weak convergence to a diffusion process whose generator is explicitly...