The widely-used estimator of Berry, Levinsohn and Pakes (1995) produces estimates of consumer preferences from a discrete-choice demand model with random coefficients, market-level demand shocks and endogenous prices. We derive numerical theory results characterizing the properties of the nested...

One of the most striking portfolio puzzles is the %u201Cdisposition effect%u201D: the tendency of individuals to sell stocks in their portfolios that have risen in value since purchase, rather than fallen in value. Perhaps the most prominent explanation for this puzzle is based on prospect...

Transaction costs in trading involve both risk and return. The return is associated with the cost of immediate execution and the risk is a result of price movements during a more gradual trading. The paper shows that the trade-off between risk and return in optimal execution should reflect the...

By applying stochastic dominance arguments, upper bounds on the reservation write price of European calls and puts and lower bounds on the reservation purchase price of these derivatives are derived in the presence of proportional transaction costs incurred in trading the underlying security....

The optimal portfolio of a utility-maximizing investor trading in the S&P 500 index and cash, subject to proportional transaction costs, becomes stochastically dominated when overlaid with a zero-net-cost portfolio of S&P 500 options bought at their ask and written at their bid price in most...

We derive the effect of plausible deniability on asset risk premia in a dynamic setting with correlated firm values, systematic risk, and risk-averse investors. Firms optimally exercise American disclosure options, which are more valuable due to the possibility that other correlated firms may...

When all financial assets have risky returns, the mean-variance portfolio model is potentially subject to two types of bliss points. One bliss point arises when a von Neumann-Morgenstern utility function displays negative marginal utility for sufficiently large end-of-period wealth, such as in...

We calculate the socially optimal level of illiquidity in an economy populated by households with taste shocks and present bias (Amador, Werning, and Angeletos 2006). The government chooses mandatory contributions to respective spending/savings accounts, each with a different pre-retirement...

Little attempt has been made so far to quantify the extent to which individual willingness to spend on life protection may account for the observed trends and diversities in agespecific life expectancies across individuals and over time. We address these issues via calibrated simulations of a...

This paper studies the econometrics of computed dynamic models. Since these models generally lack a closed-form solution, their policy functions are approximated by numerical methods. Hence, the researcher can only evaluate an approximated likelihood associated with the approximated policy...