We investigate risk averse agents who manage risk by trading financial securities in a market that we call a risk market. We assume this market is perfectly competitive and complete. When risk aversion is expressed using risk measures, the (bundle of) prices for financial securities turns out to...

Exponential growth of credit default swaps market and the resulting pile of CDS contracts of notional value of $62 trillion by the end of 2007 as well as the OTC nature of the contracts are widely believed to be one of the main causes of the current crisis and its depth, because large volumes of...

We generalize the long-run risks (LRR) model in Bansal and Yaron (2004) by incorporating the recursive smooth ambiguity aversion preferences of Klibanoff, Marinacci, and Mukerji (2005, 2009) and time-varying ambiguity. Relative to the Bansal-Yaron model, the generalized LRR model remains...

Financial analyses such as valuation, solvency and capital adequacy play a crucial role in bankruptcy. Over the course of the 20th century, methods of financial analysis in bankruptcy have shifted from earnings multiples to discounted cash flow (DCF) and recently to market-based approaches such...

Banks must manage their trading books, not just value them. Pricing includes valuation adjustments collectively known as XVA (at least credit, funding, capital and tax), so management must also include XVA. In trading book management we focus on pricing, hedging, and allocation of prices or...

We study the portfolio problem of maximizing the outperformance probability over a random benchmark through dynamic trading with a fixed initial capital. Under a general incomplete market framework, this stochastic control problem can be formulated as a composite pure hypothesis testing problem....