Introduction to the Economics and Mathematics of Financial Markets fills the longstanding need for an accessible yet serious textbook treatment of financial economics. The book provides a rigorous overview of the subject, while its flexible presentation makes it suitable for use with different...

We introduce a model that captures the main properties that characterize employee stock options (ESO). We discuss the likelihood of early voluntary ESO exercise, and the obligation to exercise immediately if the employee leaves the firm, except if this happens before options are vested, in which...

We consider the problem of a Central Bank that has some exchange rate goals. We compare "direct" Intervention through sale/purchase of reserves in the currency market with an alternative strategy of intervention with options. The intervention affects the currency markets because as a result of...

We consider a pure exchange economy consisting of a single risky asset whose dividend drift rate is modeled as an Omstein-Uhlenbeck process, and a representative agent with power-utility who, in equilibrium, consumes the dividend paid by the risky asset. Endogenously determined interest rates...

This is a companion paper to the authors 'Asset Prices in an Exchange Economy with Habit Formation" in "Econometrica" which focuses on consumption demand and asset pricing when preferences are habit forming. Here we prove existence of optimal consumption-portfolio policies for (i) utility...

This paper tests the cross-sectional implications of "keeping-up-with-the-Joneses" (KUJ) preferences in an international setting. When agents have KUJ preferences, in the presence of undiversifiable nonfinancial wealth, both world and domestic risk (the idiosyncratic component of domestic...

We derive an international asset pricing model that assumes local investors have preferences of the type "keeping up with the Joneses." In an international setting investors compare their current wealth with that of their peers who live in the same country. In the process of inferring the...

This paper introduces a Monte Carlo simulation method for pricing multidimensional American options based on the computation of the optimal exercise frontier. We consider Bermudan options that can be exercised at a finite number of times and compute the optimal exercise frontier recursively. We...

We examine the extent to which an investor's tastes and beliefs can be jointly recovered from knowledge of his/her consumption choice. More precisely, we assume that the investor's preferences admit an expected utility representation, but with subjective (unknown) probabilities, and investigate...