We study multiline insurance companies with limited liability. Insurance premiums are determined by no-arbitrage principles. The results are developed under the realistic assumption that the losses created by insurer default are allocated among policyholders following an "ex post", pro rata,...

The recent financial crisis has revealed significant externalities and systemic risks that arise from the interconnectedness of financial intermediaries' risk portfolios. We develop a model in which the negative externality arises because intermediaries' actions to diversify that are optimal for...

We present a unified approach to value at risk analysis under heavy-tailedness using new majorization theory for linear combinations of thick-tailed random variables that we develop. Among other results, we show that the stylized fact that portfolio diversification is always preferable is...

The present paper introduces new sign tests for testing for conditionally symmetric martingale-difference assumptions as well as for testing that conditional distributions of two (arbitrary) martingale-difference sequences are the same. Our analysis is based on the results that demonstrate that...

Focusing on the model of demand-driven innovation and spatial competition over time in Jovanovic and Rob (1987), we study the effects of the robustness of estimators employed by firms to make inferences about their markets on the firms’ growth patterns. We show that if consumers’ signals in...

Emerging countries are held to be subject to more frequent and more pronounced external and internal shocks than their developed counter-parts. This suggests that key variables pertaining to their markets, including their exchange rates, will be marked by greater likelihood of extreme...

We develop a framework that allows one to model the optimal bundling problem of a multiproduct monopolist providing interrelated goods with an arbitrary degree of complementarity or substitutability. Characterizations of optimal bundling strategies are derived for the seller in the case of...

Recent results in value at risk analysis show that, for extremely heavy-tailed risks with unbounded distribution support, diversification may increase value at risk, and that, generally, it is difficult to construct an appropriate risk measure for such distributions. We further analyze the...