little exposure to traditional risk factors but are weakly related to market and reversal risk factors …

We examine the interplay between event risk, transaction costs and predictability on the dynamic asset allocation of an … event risk on asset allocations, hedging demands, no-trading regions, and certainty equivalent returns. It is found that … event risk shrinks hedging demand. Neglecting event risk can also lead to sizeable certainty equivalent return losses …

A risk-averse agent hedges her exposure to a non-tradable risk factor U using a correlated traded asset S and accounts … holds a linear position in U. When the exposure to the non-tradable risk factor is non-linear, we provide an approximation … cross-impact and risk-aversion are small. We further prove that when exposure to U is non-linear, the approximate optimal …