We develop a simple model of labor market participation, human capital degradation, and re-training. We focus on how non-participation, as a distinct state from unemployment and employment, is determined by the welfare system in interaction with labor market conditions and personal...

We analyze the investment behavior of private clients concerning structured products. To ascertain their stated and revealed preferences, we use a questionnaire and a field experiment, respectively. The real product issued in the field experiment is comparable to one product in the questionnaire...

Economists have forcefully argued for the introduction and use of property derivatives as a hedge against house price risk (e.g. Shiller and Weiss, 1999). The rationale for these financial instruments seems clear, as many households are heavily invested in housing and standard financial...

The paper investigates how buyer-supplier firm-specific relationships affect security prices. Starting from the empirical inconsistencies associated with some standard structural models we propose a structural model of firm dependence in a vertically connected network of firms based on cash flow...

We present a multi-period mean-variance optimization program which allows for a joint optimization of the balance and off-balance sheet. Our first finding is the proof of a conjecture of Li and Ng (cf. [LN00]), Leippold, Trojani and Vanini (cf. [LTV04], [LTV03]) about the equivalence of the...

Economic cycles are the key credit portfolio risk driver and they are autocorrelated over time. We then show that it is economically meaningful to define risk for credit portfolios in a multi period setup. Since one period expected shortfall fails to measure risk adequately in a multi period...

We apply perturbation methods to solve in closed form a class of robust control problems, implied by Anderson, Hansen and Sargent setting of a preference for robustness. In the constant investment opportunity set case, we obtain closed form power series solutions for the arising robust Bellman...

In letzter Zeit häufen sich Zahlungsschwierigkeiten von Ländern gegenüber ihrenausländischen Geldgebern. Beim Ausbleiben dieser Zahlungen wird um die Stabilität des internationalen Finanzsystems gefürchtet. Um diese Gefahr abzuwenden, werden den zahlungsunfähigen Ländern unter der...

We propose a local likelihood estimation for the log-transformed ARCH(1) model in the financial field. Our nonparametric estimator is constructed within the likelihood framework for non-Gaussian observations: it is different from standard kernel regression smoothing, where the innovations are...

One of the most enduring questions in finance is the persistence of investment risk across time. Traditional finance lacks of recipes on how to approach and how to hedge non-diversifiable risks. Risks that can not be diversified at a given point in time can nevertheless be averaged over time...