The Itô formula was extended recently by Dupire (2009) to functionals of paths of continuous semimartingales, and by Cont and Fournié (2010a) to functionals of paths of RCLL semimartingales. In contrast to the traditional formula that applies to functions of the current value of a process,...

We analyze the lifetime consumption-portfolio problem in a competitive securities market with continuous price dynamics, possibly nontradeable income, and convex trading constraints. We define a class of "translation-invariant" recursive preferences, which includes additive exponential utility,...

We consider the lifetime consumption-portfolio problem in a competitive securities market with essentially arbitrary continuous price dynamics, and convex trading constraints (e.g., incomplete markets and short-sale constraints). Abstract first-order conditions of optimality are derived, based...

Curnow and Dunnett (Curnow, R. N., C. W. Dunnett. 1962. The numerical evaluation of certain multivariate normal integrals. Ann. Math. Statist. 33 571--579.) derive a reduction formula for multivariate normal integrals with a certain type of correlation matrix. This paper presents a more general...

In this paper we present a model of the term structure of interest rates with imperfect information and stochastic differential utility, a form of non-additive recursive utility. A principal feature of recursive utility, that distinguishes it from time-separable expected utility, is its...

We show how competition in oligopolies, with the possibility of failure and exit of a levered incumbent, affects the ex-ante design of optimal debt contracts. When a levered firm's profits are unobservable, a debt contract imposes the threat of nonrenewal to induce truthful revelation. Because...

A change of numeraire argument is used to derive a general option parity, or equivalence, result relating American call and put prices, and to obtain new expressions for futures and forward prices. The general parity result unifies and extends a number of existing results. The new futures and...

We show an isomorphism between optimal portfolio selection or competitive equilibrium models with utilities incorporating linear habit formation, and corresponding models without habit formation. The isomorphism can be used to mechanically transform known solutions not involving habit formation...