We analyze the optimal allocation of trades to portfolios when the cost associated with an allocation is proportional to each portfolio's risk. Our investigation is motivated by changes in the over-the-counter derivatives markets, under which some contracts may be traded bilaterally or through...

The stationary distribution of a GARCH(1,1) process has a power law decay, under broadly applicable conditions. We study the change in the exponent of the tail decay under temporal aggregation of parameters, with the distribution of innovations held fixed. The parameter transformation we study...

The well-documented underreaction of stock prices to news exhibits substantial time variation, and comoves with institutional capital and trading motives. We show that higher risk-bearing capacity of financial intermediaries and lower passive ownership of stocks increase price underreaction....

We address the problem of defining and calculating forward volatility implied by option prices when the underlying asset is driven by a stochastic volatility process. We examine alternative notions of forward implied volatility and the information required to extract these measures from the...

This paper studies total positivity and relative convexity properties in option pricing models. We introduce these properties in the Black-Scholes setting by showing the following: out-of-the-money calls are totally positive in strike and volatility; out-of-the-money puts have a reverse sign...

We develop a framework to quantify the vulnerability of mutual funds to fire-sale spillover losses. We account for the first-mover incentive that results from the mismatch between the liquidity offered to redeeming investors and the liquidity of assets held by the funds. In our framework, the...