We introduce a new class of flexible and tractable matrix a±ne jump-diffusions (AJD) to modelmultivariate sources of financial risk. We first provide a complete transform analysis of this model class,which opens a range of new potential applications to, e.g., multivariate option pricing with...

In a Lucas orchard with heterogeneous beliefs, we study the link between market-wide uncertainty, difference of opinionsand co-movement of stock returns. We show that this link plays an important role in explaining the dynamics of equilibriumvolatility and correlation risk premia. In our...

We study the optimal policies and mean-variance frontiers (MVF) of a multiperiod mean-variance optimization of assets and liabilities (AL). Our model allows for a contemporaneous optimization of the balance-sheet as a whole. This makes the analysis more challenging than in a setting based on...

We develop a continuous time general equilibrium yield curve model under ambiguity aversion. A moderate level of ‘aggregate ambiguity’ affects significantly the term structure and can drive the prices of common interest rate derivatives toward the patterns observed in fixed income markets....

We study an equilibrium asset pricing model with several Lucas (1978) trees subject toevent risk, that is, the possibility that trees experience unexpected disasters. We exploit themarket clearing mechanism, in the presence of multiple positive net supply assets, to showthat the implications of...

We develop a new completely affine model of the term structure of interest rates, in which the statevariables evolve as a matrix-valued process of stochastically correlated factors. This setting grants a newelement of flexibility in the simultaneous modeling of stochastic volatilities and...

This paper offers a possible explanation for the conflicting empirical results in the literature concerning the relation between loan risk and collateral. Specifically, we posit that different economic characteristics or types of collateral pledges may be associated with the empirical dominance...

The literature has documented a positive relationship between the use of credit scoring for small business loans and small business credit availability, broadly defined. However, this literature is hampered by the fact that all of the studies are based on a single 1998 survey of the very largest...

This paper explores the question of whether market participants could have or should have anticipated the large increase in foreclosures that occurred in 2007 and 2008. Most of these foreclosures stemmed from loans originated in 2005 and 2006, leading many to suspect that lenders originated a...

In a recent set of influential papers, researchers have argued that residential mortgage foreclosures reduce the sale prices of nearby properties. We revisit this issue using a more robust identification strategy combined with new data that contain information on the location of properties...