a simple extension of the long-run risk model … risks. Portfolios hedging macro uncertainty have historically earned zero or even significantly positive returns, while …

when the investor has access to nominal bonds and a stock portfolio. In the presence of unhedgeable inflation risk, there … of the investor. We apply our method to a three-factor Gaussian model with a time-varying price of risk that captures the … changes in term premia generates large hedging demands for long-term bonds …

will understate volatility and increase risk-adjusted performance measures such as the Sharpe ratio. We propose an …

strategies yield low systemic-risk-adjusted returns. In particular, we show that carry trade returns are highly correlated with … diversified portfolios. In contrast, hedging the carry with exchange rate options produces large returns that are not a … compensation for systemic risk. We show that this result stems from the fact that the corresponding portfolio of exchange rate …

This paper develops a method for option hedging which is consistent with time-varying preferences and probabilities … leverage. State prices are estimated using the flexible risk-neutral density method of Rosenberg (1995) and a daily cross … risk aversion over S&P500 return states is substantially higher than risk aversion implied by Black-Scholes state prices …

parameterizing the volatility process as GARCH, and utilizing risk- neutral valuation, we estimate hedging parameters (delta and …This paper addresses the issue of hedging option positions when the underlying asset exhibits stochastic volatility. By … gamma) using Monte-Carlo simulation. We estimate hedging parameters for options on the Standard and Poor's 500 index, a bond …

A key criticism of the existing empirical literature on the risk-return relation relates to the relatively small amount …, measures of conditional mean and conditional volatility--and ultimately the risk-return relation itself--will be misspecified … that three new factors, a "volatility," "risk premium," and "real" factor, contain important information about one …

We characterize and measure a long-run risk return tradeoff for the valuation of financial cash flows that are exposed … inputs from vector autoregressions to quantify this relationship; and we study the long-run risk differences in aggregate …