We consider the optimal asset allocation choice of an investorwho can invest in cash (a money market bank account), nominal bonds, and stocks (the stock index). The investor faces an incomplete market setting and is not able to perfectly hedge long run real interest rate risk using the available...

We estimate a continuous-time stochastic volatility model usingpanel data of soybean futures and options on soybean futures.The model of commodity price dynamics is within the class of so-called affine asset pricing models, and option prices are determined using a standard inversion of...

In this paper, we use recursive and rolling cointegration methods to test for a system of several exchange rates being within the process of convergence. We use the methods to analyze how the convergence of five ERM exchange rates has developed during the ERM period. We find that the number of...

The stochastic behavior of agricultural commodity prices is investigated using observations of the term structures of futures prices over time. The continuous time dynamics of (log-) commodity prices are modeled as a sum of a deterministic seasonal component, a non-stationary state-variable, and...

Defined contribution pension schemes often have a mandatory minimum interest rate guarantee as an integrated part of the contract. The guarantee is an embedded put option issued by the institution to the individual who is forced to invest in the option. As argued in this paper, the individual...

We study the consumption and investment choice of a price-taking utility-maximizing investor having access to trade in stocks and interest-rate dependent assets with a stochastically evolving term structure of interest rates. We derive explicit expressions for the optimal investment strategy of...

This paper develops a general and flexible multivariate discrete-time model of dynamic asset allocation with incomplete information and learning in the case of timevarying investment opportunity sets. The state variables are described by a vector autoregression and the investor is assumed to...