Instantaneous risk is described by the arrival rate of jumps in log price relatives. Aggregate arrivals are infinite. There is then no concept of a mean return compensating risk exposure. The only risk-free instantaneous return is zero. All portfolios are subject to risk and there are only bad...

This paper studies how expected returns interact with product market competition. We present a model in which product market competition is jointly captured by the industry concentration and the average markup. We then provide empirical evidence consistent with three channels that explain the...

Allowing for correlated squared returns across two consecutive periods, portfolio theory for two periods is developed. This correlation makes it necessary to work with non-Gaussian models. The two period conic portfolio problem is formulated and implemented. This development leads to a mean ask...

Minimal discounted distorted expectations across a range of stress levels are employed to model risk acceptability in markets. Interactions between discounting and stress levels used in measure changes are accommodated by lowering discount rates for the higher stress levels. Acceptability...

We show that nonlinearly discounted nonlinear martingales are related to no arbitrage in two price economies as linearly discounted martingales were related to no arbitrage in economies satisfying the law of one price. Furthermore, assuming risk acceptability requires a positive physical...

Three particular models of dependence in asset returns with non-Gaussian marginals are investigated on daily return data for sector exchange traded funds. The first model is a full rank Gaussian copula (FGC). The second models returns as a linear mixture of independent Lévy processes (LML). The...

Portfolios are designed to maximize a conservative market value or bid price for the portfolio. Theoretically this bid price is modeled as reflecting a convex cone of acceptable risks supporting an arbitrage free equilibrium of a two price economy. When risk acceptability is completely defined...

The paper provides a new hedging methodology permitting systematic hedging choices with wide applications. Dynamic concave bid price, and convex ask price functionals from the recent literature are employed to construct new hedging strategies termed dynamic conic hedging. The primary focus of...

A Markov chain with an expanding non-uniform grid matching risk neutral marginal distributions is constructed. Conditional distributions of the chain are in the variance gamma class with prespecified skewness and excess kurtosis. Time change and space scale volatilities are calibrated from...