This paper analyzes optimal investment decisions, in the presence of non-redundant hedge funds, for investors with constant relative risk aversion. Factor regression models with optionlike risk factors and no-arbitrage principles are used to identify and estimate the market price of hedge fund...

This article reviews the literature on American-style derivatives. The presentation stresses some of the major developments in the field. The focus is on the determination of optimal exercise policies and the structure of derivatives' prices. Illustrative examples highlight the complexity of the...

A new decomposition of the optimal portfolio, in dynamic models with von Neumann-Morgenstern preferences and Ito prices, is established. The formula rests on a change of numéraire that uses pure discount bonds as units of account. The dynamic hedging demand has two components. The first hedge...