This paper analyzes the expected life-time utility and the hedging demands in an exchange only, representative agent general equilibrium under incomplete information. We derive an expression for the investor's expected life-time utility, and analyze his hedging demands for intertemporal changes...

We consider modeling errors in the hedging of a portfolio composed from BBB-rated bonds. By doing this, we open a new perspective to the debate on the relationship between corporate bonds and CDS spreads. We find that in ordinary times the added value of indexlinked credit derivatives is very...

This study deals with the dynamic hedging of single-tranche collateralized debt obligations (STCDOs). As a first step, we specify a top-down affine factor model in which a catastrophic risk component is incorporated in order to capture the dynamics of super-senior tranches. Next, we derive the...

We consider the problem of hedging a European contingent claim in a Bachelier model with transient price impact as proposed by Almgren and Chriss. Following the approach of Rogers and Singh [24] and Naujokat and Westray, the hedging problem can be regarded as a cost optimal tracking problem of...

We consider the problem of option hedging in a market with proportional transaction costs. Since super-replication is very costly in such markets, we replace perfect hedging with an expected loss constraint. Asymptotic analysis for small transaction costs is used to obtain a tractable model. A...

We investigate the implications of technological innovation and non-diversifiable risk on entrepreneurial entry and optimal portfolio choice. In a real options model where two risk-averse individuals strategically decide on technology adoption, we show that the impact of non-diversifiable risk...

We solve the problems of mean-variance hedging (MVH) and mean-variance portfolio selection (MVPS) under restricted information. We work in a setting where the underlying price process S is a semimartingale, but not adapted to the filtration G which models the information available for...

We solve the problem of optimal risk management for an investor holding an illiquid, alpha generating fund and hedging his position with a liquid futures contract. When the investor is subject to a drawdown constraint, he is forced to reduce the total risk of his portfolio after a drawdown. In...

This study presents a hedge fund portfolio choice model for an investor facing ambiguity. In the empirical section, we measure ambiguity as the cross-sectional dispersion in Industrial Production growth and in stock market return forecasts, and we construct the systematic ambiguity factors from...

We study mean-variance hedging under portfolio constraints in a general semimartingale model. The constraints are formulated via predictable correspondences, meaning that the trading strategy is restricted to lie in a closed convex set which may depend on the state and time in a predictable way....