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,...

We provide two new closed-form approximation methods for pricing spread options on a basket of risky assets: the extended Kirk approximation and the second-order boundary approximation. The latter method generalizes the results in Li et al. [J. Deriv., 2008, 15, 58–80] to spread options on an...

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.

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...

This paper examines the dynamics of the covariance matrix of return rates for securitized real estate, other company stocks, and government bonds for a cross-section of eight countries. In-sample analysis establishes that in all countries the covariance matrix is time-varying and reacts stronger...