We analyze an environment where the uncertainty in the equity market return and its volatility are both stochastic, and may be potentially disconnected. We solve a representative investor's optimal asset allocation and derive the resulting conditional equity premium and risk-free rate in...

Recent empirical studies find evidence that commodity prices have become more correlated with financial markets since the early 2000s. This increased correlation is called the financialization of commodity markets and is conjectured to be due to the influx of external (portfolio optimizing)...

American options are actively traded worldwide on exchanges, thus making their accurate and efficient pricing an important problem. As most financial markets exhibit randomly varying volatility, in this paper we introduce an approximation of American option price under stochastic volatility...

We study the Merton portfolio optimization problem in the presence of stochastic volatility using asymptotic approximations when the volatility process is characterized by its time scales of fluctuation. This approach is tractable because it treats the incomplete markets problem as a...

Two major financial market complexities are transaction costs and uncertain volatility, and we analyze their joint impact on the problem of portfolio optimization. When volatility is constant, the transaction costs optimal investment problem has a long history, especially in the use of...

This paper studies the problem of understanding implied volatilities from options written on leveraged exchanged-traded funds (LETFs), with an emphasis on the relations between LETF options with different leverage ratios. We first examine from empirical data the implied volatility skews for LETF...

We present a valuation framework that captures the main characteristics of employee stock options (ESOs), which financial regulations now require to be expensed in firms' accounting statements. The value of these options is much less than Black-Scholes prices for corresponding market-traded...

We study continuous time Bertrand oligopolies in which a small number of firms producing similar goods compete with one another by setting prices. We first analyze a static version of this game in order to better understand the strategies played in the dynamic setting. Within the static game, we...

In this paper, we present an intensity-based common factor model that is used to analyze the valuation of common systematic risks in multi-name credit and equity markets. In particular, we use a hybrid intensity model to price single-name credit instruments such as credit default swaps (CDSs),...