A systematic empirical finding is that foreign exchange risk is priced in international markets. The theoretical foundation for virtually all empirical models is the seminal contribution by Adler and Dumas [1983]. In that paper, the authors show that, in an international economy in which the...

In an incomplete market in which non-redundant forward contracts contribute to span the uncertainty, some standard results of portfolio theory must be amended. When the investment opportunity set is driven by K state variables, a (K+3)-mutual fund separation theorem is obtained in lieu of...

This paper develops a pricing model of nature-linked bonds accounting for interest rate uncertainty and exchange rate volatility within an arbitrage approach. We show first that this valuation boils down to computing first-passage time distributions, since bondholders are shown to be in a short...

We derive the general equilibrium short-term real and nominal interest rates in a monetary economy affected by technological and monetary shocks and where the price level dynamics is endogenous. Assuming fairly general processes for technology and money supply, we show that an inherent feature...

In an economy where interest rates and stock price changes follow fairly general stochastic processes, we analyse the portfolio problem of an expected utility investor. When the investment opportunity set is driven by an arbitrary number of state variables, the optimal portfolio strategy is...

When an incomplete financial market of cash assets is completed (partially or not) by the introduction of non-redundant futures contracts, mean-variance efficiency of the market portfolio is not required. This result holds regardless of whether individuals exhibit myopic behaviors or not. The...

This paper derives optimal hedging demands for futures contracts from an investor who cannot freely trade his portfolio of primitive assets in the context of either a CARA or a logarithmic utility function. Existing futures contracts are not numerous enough to complete the market. In addition,...

Within an agency theoretic framework adapted to the portfolio delegation issue, we show how to construct optimal benchmarks. In accordance with U.S. regulations, the benchmark-adjusted compensation scheme is taken to be symmetric. The investor's only control is to force the manager to adopt the...