We study the pricing and hedging of derivative securities with uncertainty about the volatility of the underlying asset. Rather than taking all models from a prespecified class equally seriously, we penalise less plausible ones based on their "distance" to a reference local volatility model. In...

This paper treats the risk-averse optimal portfolio problem with consumption in continuous time for a stochastic-jump-volatility, jump-diffusion (SJVJD) model of the underlying risky asset and the volatility. The new developments are the use of the SJVJD model with...

We consider an optimal execution problem where an agent holds a position in an asset which must be liquidated (using limit orders) before a terminal horizon. Beginning with a standard model for the trading dynamics, we analyse how the acknowledgement of model misspecification affects the agent's...

We study a continuous-time model of consumption and portfolio selection with limited commitment in a stochastic environment. The credit constraints of a household are determined endogenously in the credit market where creditors know that the household is not committed to payment of debt. By...

This paper provides a detailed framework for modeling portfolios, achieving the highest growth rate under subjective risk constraints such as Value at Risk (VaR) in the presence of stable laws. Although the maximization of the expected logarithm of wealth induces outperforming any other...

In dynamic portfolio choice problems, stochastic state variables such as stochastic volatility lead to adjustments of the optimal stock demand referred to as hedge terms or Merton-Breeden terms. By deriving an explicit solution in a multi-agent framework with a stochastic opportunity set, we...

This paper develops a tractable dynamic model of competition between two risk-averse portfolio managers who attempt to outperform each other by trading in different stocks, reflecting asset specialization. We characterize explicitly the unique Nash equilibrium portfolio policies, and show that a...

Previous literature documents that mutual funds' flows increase more than linearly with realized performance. I show this convex flow-performance relationship is consistent with a dynamic contracting model in which investors learn about the fund manager's skill. My model predicts that flows...

Present market instabilities have prompted great interest on the characteristics of specific portfolios such as minimum variance and equally- weighted risk contribution portfolios as these portfolios do not rely on the estimate of expected returns. Indeed, in turmoil periods traditional market...

This paper explores the optimisation of asset allocation within “alternative” investments, i.e. between private equity and hedge funds, as well as between private equity and public equities. It uses our proprietary Portfolio Blender tool. As a preliminary step before the optimisation, we...