Mean-variance criteria remain prevalent in multi-period problems, and yet not much is known about their dynamically optimal policies. We provide a fully analytical characterization of the optimal dynamic mean-variance portfolios within a general incomplete-market economy, and recover a simple...

Models with event risk (the possibility of sudden large price movements) have proven important for option pricing (e.g., Bates (1996))and optimal portfolio selection (e.g., Liu, Longstaff and Pan(2003)). However, most of the existing studies ignore transaction costs which are prevalent in almost...

Contrary to the prediction of standard portfolio diversification theory, most investors place a large fraction of their stock investment in a small number of stocks. We show that underdiversification may be caused by risk control. The key assumption is that investors are portfolio insurers who...

In this paper, we introduce a new approach for finding robust portfolios when there is model uncertainty. It differs from the usual worst case approach in that a (dynamic) portfolio is evaluated not only by its performance when there is an adversarial opponent (quot;naturequot;), but also by its...

In an environment with stocks and short-term debt, random changes in the risk-reward frontier produce hedging demands for equities, implying that portfolio policies supporting optimal life-cycle consumption are rarely mean-variance efficient. Pursuing optimal life-cycle portfolio policies is...

Conflicts of interest between insiders (e.g, controlling shareholders) and outsiders (e.g., minority shareholders) are central to the analysis of modern corporation. In an integrated continuous-time contingent claims framework with imperfect corporate governance, we examine a controlling...

Traditionally, analysts and traders have expected to see a stable, reasonably predictable, relationship between the price (and thus the rate of return) of gold and silver. Both these metals retain important industrial, commercial and investment uses. Recent research has cast some doubt on this...

Bilateral supply contracts are widely used despite the presence of spot markets. In this paper we provide a potential explanation for this prevalence of supply contracts even when spot markets are liquid and without delivery lag. Specifically, we consider the determination of an equilibrium...

We consider the optimal portfolio selection problem for a constant relative risk aversion (CRRA) investor who derives utility from his terminal wealth. The stock returns are predictable, but the predictive variables are only periodically observable with noise. We obtain the investor's value...

This paper examines the optimal allocation of assets in well diversified equity based portfolio where the investor is concerned not only with mean and variance but also with the skewness of the returns. Beginning with an analysis of the rationale for concerning with skewness, the paper then...