In a complete financial market every contingent claim can be hedged perfectly. In an incomplete market it is possible to stay on the safe side by superhedging. But such strategies may require a large amount of initial capital. Here we study the question what an investor can do who is unwilling...

An investor faced with a contingent claim may eliminate risk by (super-)hedging in a financial market. As this is often quite expensive, we study partial hedges, which require less capital and reduce the risk. In a previous paper we determined quantile hedges which succeed with maximal...

This paper applies the dichotomous theory of choice by Zou (2000a) tothe analysis of investmentstrategies and security markets. Issues concerning individualoptimality, (approximate) arbitrage,capital market equilibrium, and Pareto efficiency are studied undervarious market conditions. Among the...

This paper proposes a theoretical analysis on the impacts of using a suboptimal information set on the three main components used in asset pricing, namely the risk physical and neutral measures and the relative pricing kernel.The analysis is carried out by means of a portfolio optimization...

Purportedly consistent with "risk parity" (RP) asset allocation, recent studies document compelling "low risk" trading strategies that exploit a persistently negative relation between Sharpe ratios (SRs) and maturity along the U.S. Treasury (UST) term structure. This paper extends this evidence...

This paper is the first to analyze and value early exercises of Individual Investors in fixed-income investment products. Assuming decision and transaction costs we consider that a continuous decision-making on holding or exercising is not optimal anymore and propose a new approach to modeling...

We compare the performance of time-series (TS) and cross-sectional (CS) strategies based on past returns. While CS strategies are zero-net investment long/short strategies, TS strategies take on a time-varying net-long investment in risky assets. For individual stocks, the difference between the...

In this paper we provide new evidence on the predictability of aggregate stock market returns, and new time series of the expected excess returns on common stocks. We extract aggregate discount rate news from equity portfolio returns and use this information to construct estimates of expected...

We examine the roles of rational and behavioural factors in explaining long-run premiums/discounts on closed-end funds, using evidence on equity funds from the US and UK. Although the processes by which fund prices converge towards long-run premiums or discounts are similar in the two countries,...