This paper analyzes the relation between correlation risk and the cross-section of hedge fund returns.Legal framework and investment mandate imply that hedge funds can be severely exposed tocorrelation risk: Hedge funds ability to enter long-short positions can be useful to reduce marketbeta,...

This paper presents a utility-based approach to value the borrower optimal behavior in presence of credit risk. The paper solves for the dynamic portfolio choices of a borrower. We thereby show that the presence of debt leads to a substantial modification in the borrower's behavior across states...

In this paper we solve an intertemporal portfolio problem with correlation risk, using a new approach for the simultaneous modeling of stochastic correlation and volatility. The solutions of the model are in closed form and include an optimal portfolio demand for hedging correlation risk. We...

This paper investigates model risk issues in the context of mean-variance portfolio selection. We analytically and numerically show that, under model misspecification, the use of statistically robust estimates instead of the widely used classical sample mean and covariance is highly beneficial...

The wealth dynamics of insurance companies strongly depends on the success of their investment strategies, but also on liquidity shocks which occur during unfavorable years, when indemnities to be paid to the clients exceed collected premia. An investment strategy that does not take liquidity...

This paper proposes a new wealth-dependent utility function for the inter-temporal consumption and portfolio problem, in which the subsistance (bliss) con-sumption level is a function of wealth. Ratchet effects obtain when higher wealth in-creases the subsistance consumption level; blas´...

This paper studies an application of a Darwinian theory of portfolioselection to stocks listed in the Dow Jones Industrial Average (DJIA).We analyze numerically the long-run outcome of the competition offix-mix portfolio rules in a stock market with actual DJIA dividends.In the model seemingly...

This paper complements theoretical studies on the Kelly rule in evolutionary finance by studying a Darwinian model of selection and reproduction in which the diversity of investment strategies is maintained through genetic programming. We find that investment strategies which optimize long-term...

In this paper, we consider an investor who plays in a market that involves a risky asset whose instantaneous rate of return changes at unknown random times. This return rate is assumed to follow the law of a Compound Poisson Process. We construct optimal mathematical strategies in this context...

This paper shows that a stock market is evolutionary stable if andonly if stocks are evaluated by expected relative dividends. Any othermarket can be invaded by portfolio rules that will gain market wealthand hence change the valuation. In the model the valuation of assetsis given by the wealth...