This article studies the central role of the credit market. We show that the credit market facilitates optimal risk sharing by allowing less risk-averse investors to take on levered positions and consume more risk. The equilibrium amount behaves procyclically when aggregate consumption is low...

This article studies the central role of the credit market. We show that the credit market facilitates optimal risk sharing by allowing less risk-averse investors to take on levered positions and consume more risk. The equilibrium amount behaves procyclically when aggregate consumption is low...

We solve a model with two i.i.d. Lucas trees. Although the corresponding one-tree model produces a constant price-dividend ratio and i.i.d. returns, the two-tree model produces interesting asset-pricing dynamics. Investors want to rebalance their portfolios after any change in value. Because the...

Commodity derivatives are becoming an increasingly important part of the global derivatives market. Here we develop a tractable stochastic volatility model for pricing commodity derivatives. The model features unspanned stochastic volatility, quasi-analytical prices of options on futures...

We develop a tractable and flexible stochastic volatility multifactor model of the term structure of interest rates. It features unspanned stochastic volatility factors, correlation between innovations to forward rates and their volatilities, quasi-analytical prices of zero-coupon bond options,...