We study Aumann and Serrano's (2008) risk index for sums of gambles that are not dependent. If the dependent parts are similarly ordered, then the risk index of the sum is always larger than the minimum of the risk indices of the two gambles. For negative dependence, the risk index of the sum is...

There are several pricing and risk model applications where the assumption of a deterministic LIBOR-OIS basis can lead to severe mispricing. By modeling such a basis using a jump-diffusion process, we show how stochastic basis can impact the valuation of specific deals such as zero-coupon swaps,...

When using daily mutual fund returns to study the market timing, heavy tails and heteroscedasticity significantly challenge the existing methods. We to accommodate them, we propose a new measure and an efficient test for market timing ability and find that the traditional test misclassifies...

We show that two prominent bootstrap tests for fund skill have distorted test sizes because many funds have short return records and skewed return residuals, and they lack test power to detect skilled funds when a substantial number of unskilled funds are present. We develop the theory for a...

The paper characterizes first and second order tail behavior ofconvolutions of i.i.d. heavy tailed random variables with supporton the real line. The result is applied to the problem of riskdiversification in portfolio analysis and to the estimation of theparameter in a MA(1) model.