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 …. Similar results obtain with options on the CAC and DAX indices. The results are explained neither by priced factors nor a non …

an additional hedging motif driven by the interaction between real exchange rate risk and ambiguity aversion. What … matters is the long-run as opposed to the short-run risk. Domestic equity is a good hedge with respect to long-run real … exchange rate risk even when bonds are traded. The higher is the degree of ambiguity aversion, the stronger is the home bias …

We study the pricing of uncertainty shocks using a wide-ranging set of options that reveal premia for macroeconomic … role for "good uncertainty". Options for nonfinancials are particularly important for spanning macro risks and good … a simple extension of the long-run risk model …

Contrary to the Black-Scholes model, volatilities implied by index option prices depend on the exercise price of the … the mean and volatility of equity returns. Our model assumes a small risk of a rare disaster that is calibrated based on … the international data on large consumption declines. We allow the risk of this rare disaster to be stochastic, which …

options. These two measures capture the ex-ante risk assessed by investors. We find that both components of risk vary …We use a novel pricing model to filter times series of diffusive volatility and jump intensity from S&P 500 index … substantially over time, are quite persistent, and correlate with each other and with the stock index. Using a simple general …

unexploited gains from further international diversification. Mutual funds investing globally could achieve better risk …

risk and return characteristics of domestic and international investments available to a British investor, and to quantify …

repatriate some of the foreign equity to decrease their exchange rate risk. By doing so, foreign currency is sold, leading to … we argue that a motive other than reducing currency risk exposure is likely behind this rebalancing. In particular, U … tactical reallocations to increase returns rather than reduce risk …

asset cannot be traded for intervals of uncertain duration. Illiquidity leads to increased and state-dependent risk aversion …