The classic Lucas asset pricing model with complete markets stresses aggregate risk and, hence, fails to investigate the impact of agents heterogeneity on the dynamics of the equilibrium quantities and measures of trading volume. In this paper, we investigate under what conditions...

To obtain the maximum benefits from diversification, financial theory suggests that investors should invest internationally because of the larger potential for risk reduction stemming from the lower correlation exisiting between assets of different countries. The question that we raise in this...

According to standard theory, wealth should have no intrinsic value. Yet, conventional wisdom, recent theories, and data suggest it might. We verify whether or not households have direct preferences over wealth in selecting assets. The fully structural econometric model focuses on a multivariate...

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

We develop a general equilibrium model of a production economy which has a risky production technology as well as a growth option to expand the scale of the productive sector of the economy. We show that when confronted with growth options, the representative consumer may sharply alter...

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...

In this paper, we solve the intertemporal investment problem of an investor holding a portfolio of default-free and defaultable bonds. Default-risk is modeled in an intensity based framework with state variables following an affine diffusion. The structure of the optimal portfolio over time is...

We present a model in which a sovereign country optimally decides on its consumption and investment policies as well as on the optimal time to default. In the paper we allow the sovereign borrower to keep the fraction of its augmented wealth in so-called international reserves. We further assume...

We develop a new methodology to measure conditional dependency between time series each driven by complicated marginal distributions. We achieve this by using copula functions that link marginal distributions, and by expressing the parameter of the copula as a function of predetermined...