We introduce a method that relies exclusively on Monte Carlo simulation in order to compute optimal portfolios. Our method is completely general and only requires complete markets and knowledge of the dynamics of the security processes. It is precise and easy to implement. It can be applied...

We study the portfolio selection problem of an investor who can optimally exert costly effort for more income. The possibility of generating more income, if necessary, increases the risk-taking appetite of the investor. We find the optimal allocation to the risky security as a proportion of...

This paper examines the effect of convexity in the corporate tax schedule on corporate investment decisions and tax burdens. Using a contingent-claims model, we show that greater tax convexity results in (i) earlier exit, (ii) delayed investment (except for small entry cost), and (iii) reduced...

We study the impact of changes in U.S. monetary policy on the equity returns of real estate-related industries. We find that, over the 1989-2005 sample period covered in our study, a hypothetical unexpected rate cut of 25 basis points (bps) is associated with an increase of about 170 bps in the...

The paper considers the top Lyapunov exponent of a two-dimensional linear stochastic differential equation. The matrix coefficients are assumed to be functions of an independent recurrent Markov process, and the system is a small perturbation of a nilpotent system. The main result gives the...

We consider a pure exchange economy consisting of a single risky asset whose dividend drift rate is modelled by an Ornstein-Uhlenbeck process, and a representative agent with power-utility who, in equilibrium, consumes the dividend paid by the risky asset. Endogenously determined interest rates...

What percentage of their portfolio should investors allocate to hedge funds? The only available answers to the above question are set in a static mean-variance framework, with no explicit accounting for uncertainty on the active manager's ability to generate abnormal return, and usually generate...