Many firms have stockholders who face severe restrictions on their ability to sell their shares and diversify the risk of their personal wealth. We study the costs of these liquidity restrictions on stockholders using a continuous-time portfolio choice framework. The economic cost of these...

Many important classes of assets are illiquid in the sense that they cannot always be traded immediately. Thus, a portfolio position in these types of illiquid investments becomes at least temporarily irreversible. We study the asset-pricing implications of illiquidity in a two-asset exchange...

Although traded as distinct products, caps and swaptions are linked by no-arbitrage relations through the correlation structure of interest rates. Using a string market model framework, we solve for the correlation matrix implied by the swaptions market and examine the relative valuation of caps...

This article presents a simple yet powerful new approach for approximating the value of American options by simulation. The key to this approach is the use of least squares to estimate the conditional expected payoff to the optionholder from continuation. This makes this approach readily...

We conduct an empirical analysis of electricity forward prices using a high-frequency data set of hourly spot and day-ahead forward prices. We find that there are significant risk premia in electricity forward prices. These premia vary systematically throughout the day and are directly related...

We study an important recent series of multi-item multi-unit auctions conducted by the U.S. Treasury in retiring $67.5 billion of its debt. Consistent with auction theory, we find that bidders earn a small volatility-related expected profit as compensation for bearing the risk of the...

An inherent risk facing investors in financial markets is that a major event may trigger a large abrupt change in stock prices and market volatility. This paper studies the implications of jumps in prices and volatility on investment strategies. Using the event-risk framework of Duffie, Pan, and...

Gallant, Hansen and Tauchen (1990) show how to use conditioning information optimally to construct a sharper unconditional variance bound on pricing kernels. The literature predominantly resorts to a simple, sub-optimal procedure that scales returns with predictive instruments and computes...

We characterize the joint dynamics of expected returns, stochastic volatility, and prices. In particular, with a given dividend process, one of the processes of the expected return, the stock volatility, or the price-dividend ratio fully determines the other two. For example, the stock...