Risk parity is an asset allocation strategy designed so each asset class contributes equally to overall portfolio risk (as measured by volatility). While risk parity offers potential advantages, its success hinges on key assumptions and a favorable environment for bonds. Like the traditional...

We develop a model of pandemic risk management and firm valuation. We introduce aggregate transmission shocks into an epidemic model and link valuations to infections by using an asset-pricing framework that accounts for vaccines. Infections lower earnings growth but firms can mitigate damages....

The significant excess of the price of risk, research question in the version paper, [S. Chule, in Applied Mathematical Finance, submitted June 2016], is space-domain form re-evaluated into the stochastic problem objective of the premium risk. The adapts of the conventional generic replication...

The high cost of capital for firms conducting medical research and development (R&D) has been partly attributed to the government risk facing investors in medical innovation. This risk slows down medical innovation because investors must be compensated for it. We propose new and simple financial...

We develop a model of equity financing risk (EFR; i.e., risky equity issuance costs) to study the joint effects of precautionary savings and research and development (R&D) investments on expected returns. Our evidence confirms the model: (1) financial slack (i.e., liquid assets relative to R&D)...

Approximate factor models and their extensions are widely used in economic analysis and forecasting due to their ability to extracting useful information from a large number of relevant variables. In these models, candidate predictors are typically subject to some common components. In this...

We consider a risk-averse entrepreneur who invests in a project with idiosyncratic risk and takes debt financing for diversification benefits. In contrast to the literature, we assume the entrepreneur is unable to get a loan from a bank directly because of the low creditability of the...

In this paper we define a new dynamic approach for measuring the Cash- Flow-at-Risk of a firm. Starting from the assumption that the balance sheet evolves according to a system of difference equations involving the most important accounting records, we define a new risk measure, tailored on our...

We address the paradox that financial innovations aimed at risk-sharing appear to have made the world riskier. Financial innovations facilitate hedging idiosyncratic risks among agents; however, aggregate risks can be hedged only with liquid assets. When risk-sharing is primitive, agents...

Using the compensation gap between a CEO and the second-highest-paid CEO in the same Metropolitan Statistical Area (MSA) as a proxy for local tournament incentives, I document a positive relation between local tournament incentives and firm risk. Specifically, CEOs who face higher local...