We consider an international economy where purchasing power parity (PPP) is violated and financial asset returns and exchange rates follow, in real terms, general diffusion processes driven by K state variables. A country-specific representative individual trades on available assets to maximize...

When forward contracts are involved in dynamic portfolio strategies, incurred profits or losses that accrue at each instant are locked-in in the forward position up to the contract maturities. The discounted value of these gains or losses at each date t is part of investors’ wealth. This...

We consider an incomplete but frictionless financial market in which non-redundant forward contracts contribute to span the uncertainty present in the economy. When such forward contracts are available for trade, some standard results of portfolio and dynamic asset pricing theory must be...