I show in a setting of a buyer and seller with the same preferences trading two related assets so as to share volatility risk that illiquidity and virtually all impediments to trade cannot be priced in the absence of excess short-selling costs. This is because the buyer values the asset at the...

We show in a fairly general setting of a buyer and seller with the same preferences trading two related assets so as to share volatility risk that illiquidity and virtually all impediments to trade cannot be priced. This is because the buying and selling counterparties must both be optimizing....

Insurers issuing segregated fund policies apply dynamic hedging to mitigate risks related to guarantees embedded in such policies. A typical industry practice consists in using fund mapping regressions to represent basis risk stemming from the imperfect correlation between the underlying fund...

Using high-frequency data, we decompose the time-varying beta for stocks into beta for continuous systematic risk and beta for discontinuous systematic risk. Estimated discontinuous betas for S&P500 constituents between 2003 and 2011 generally exceed the corresponding continuous betas. We...

We use the Bayesian method introduced by Gallant and McCulloch (2009) to estimate consumption-based asset pricing models featuring smooth ambiguity preferences. We rely on semi-nonparametric estimation of a flexible auxiliary model in our structural estimation. Based on the market and aggregate...

We introduce a new framework for understanding portfolio diversification that provides a coherent basis for comparing methodologies and offers a new approach to portfolio construction. The primary argument is that measures of diversification based only on a covariance matrix are ambiguous...

We formulate the open-loop control framework for time-consistent mean-variance (TCMV) portfolio problems in incomplete markets with stochastic volatility (SV). We offer the existence and uniqueness results of the TCMV equilibrium controls for general SV models and derive explicit closed-form...

Fractional Kelly portfolios are popular investment strategies in the market. In this paper, we improve the mean-variance efficiency of a fractional Kelly portfolio by minimizing the variance of the return of a portfolio subject to the constraint that the expected return rate of the portfolio is...