The existing empirical evidence does not yet provide a clear understanding of how leverage and expected equity returns are related. While some studies show a positive relationship between financial leverage and returns, others conclude that returns are either insensitive or decrease with...

We view economic time series as the result of a cascade of shocks occurring at different times and different frequencies (scales). We suggest that economic relations that are found to be elusive when using raw data may hold true for different layers (details) in the cascade of economic shocks....

We propose a decomposition for time series in components classified by levels of persistence. Employing this decomposition, we provide empirical evidence that consumption growth contains predictable components highly correlated with well-known proxies of consumption variability. These components...

type="main" xml:lang="en" <p>We illustrate a numerical simulation method to decompose a portfolio of derivative securities in a linear combination of dynamical risk factors. The price of the portfolio and its sensitivities are linear functions of these factors. <p>The method generalizes the static...</p></p>

This paper proposes a framework to evaluate the impact of longevity-linked securities on the risk-return trade-off for traditional portfolios. Generalized unexpected raise in life expectancy is a source of aggregate risk in the insurance sector balance sheets. Longevity-linked securities are a...

This paper shows how to decompose weakly stationary time series into the sum, across time scales, of uncorrelated components associated with different degrees of persistence. In particular, we provide an Extended Wold Decomposition based on an isometric scaling operator...

We study a new class of three-factor affine option pricing models with interdependent volatilitydynamics and a stochastic skewness component unrelated to volatility shocks. Theseproperties are useful in order (i) to model a term structure of implied volatility skews moreconsistent with the data...

We revisit the relation between equity returns and financial leverage through the lens of a dynamic trade-off model with costly capital structure rebalancing. The model predicts that expected equity returns depend on whether a firm's leverage is above or below its target leverage. We provide...