This paper introduces state dependent utility into the standard Mehra and Prescott (1985) economy by allowing the representative agents coefficient of relative risk aversion to vary with the underlying economys growth rate. Existence of equilibrium is proved and its asymptotic properties...

This project identi.es and quanti.es two potential sources of model riskin the valuation of basket credit derivatives. The frameworkemployed is that of a latent variable model with factor structure which enjoys a great popularity in the .nancial industry as well as in academia. Preliminary...

The evidence from many experiments suggests that people are heterogeneous with regard to their abilities to make rational, forward looking, decisions. This raises the question when the rational types are decisive for aggregate outcomes and when the boundedly rational types shape aggregate...

We consider a nonparametric method to estimate copulas, i.e. functions linking joint distributions to their univariate margins. We derive the asymptotic properties of kernel estimators of copulas and their derivatives in the context of a multivariate stationary process satisfactory strong mixing...

This paper presents results on the convergence for hedging strategies in the setting of incomplete financial markets. We examine the convergence of the so-called locally risk-minimizing strategy. It is proved that such a choice for the trading strategy, when perfect hedging of contingent claims...

This paper presents an application of evolutionary portfolio theory to stocks listed in the Swiss Market Index (SMI). We study numerically the long-run outcome of the competition of rebalancing rules for market shares in a stock market with actual dividends taken from firms listed in the SMI....

Most derivative contracts are traded over-the-counter, i.e., bilaterally between two counterparties. Recently, clearing services have become available that allow to transfer over-the-counter derivatives to a central counterparty (clearing house). We develop a framework to determine the effects...

We use an expected utility framework to integrate the hedge funds survival uncertainty into an asset allocation optimizartion model. The addition of investment constraints complicates the resolution of the optimal allocation problem. It is solved using a genetic algorithm that mimics the...

In this paper we study the performance of self-financing constant proportions trading strategies, i.e. dynamic asset allocation strategies that keep a fixed constant proportion of wealth invested in each asset in all periods in time, in a stationary financial market. We prove that any mixed...

In this paper we analyze the long-run dynamics of the market selection process among simple trading strategies in an incomplete asset market with endogenous prices. We identify a unique surviving financial trading strategy. Investors following this strategy asymptotically gather total market...