It is common in the financial mathematics literature to start by fixing a probability space $(\Omega,\mathcal F,\mathbb P)$, on which the underlying price process is defined. We depart from this route in that we do not fix the prior $\mathbb P$. Under very general assumptions, we recover the...

We jointly explain the variations of the equity and value premium in a model with both short-run (SRR) and long-run (LRR) consumption risk. In our preliminary empirical analysis, we find that SRR varies with the business cycle and it has a substantial predictive power for market excess returns...

The concept of second-order risk operationalizes the estimation risk in portfolio construction induced by model uncertainty. We study its contribution to the realized volatility of recently developed risk parity strategies. For each strategy, we derive closed-form solutions for the second-order...

Pursuing risk-based allocation across a universe of commodity assets, we find diversified risk parity (DRP) strategies to provide convincing results. DRP strives for maximum diversification along uncorrelated risk sources. A straightforward way to derive uncorrelated risk sources relies on...

We study the impact of economic policy uncertainty on the term structure of nominal interest rates. We develop a general equilibrium model, in which both the government and the central bank policy decisions are driven by uncertainty shocks. Our affine yield curve model captures both the shape of...

Risk and return play a central role in financial theory. Return is easily measurable and is a percentage number indicating by how much the value of an investment or asset has changed from the previous period. But how should risk be measured? Over longer holding periods, return generation is...

This paper analyzes the impact of economic policy uncertainty on the term structure of real and nominal interest rates. We derive a general equilibrium model where the real side of the economy is driven by government policy uncertainty and the central bank sets money supply endogenously...