This paper studies the following conceptual question: in what sense is the Fundamental Theorem of Asset Pricing similar to the two-period no-arbitrage theorem (a.k.a., Farkas lemma)? The purpose of studying this question is (1) to study the information that can be extracted from prices of...

Ross (2015) shows an elegant recovery theorem but follow-up papers show it does not work empirically. BHS (2016) proposes an explanation: the transition-independent assumption is equivalent to setting the martingale component to be 1. However, I argue that the transition-independent assumption...

This note traces the past and guesses at the future of concepts in quantitative risk management by looking at the history of its vocabulary and seeing which newly introduced words have survived and prospered. It is adapted from a talk on Future Innovations in Risk Management, presented at the...

What return should you expect when you take on a given amount of risk? How should that return depend upon other people's behavior? What principles can you use to answer these questions? In this paper, we approach these topics by exploring the consequences of two simple hypotheses about risk.The...

This paper studies the behavior of corporate bond indices. We find that a 2-factor model with unobservable factors is adequate in capturing the variation of corporate bond portfolio returns, however we cannot identify any linear regression model with observable variables that would be able to do...

Leveraged ETFs provide a convenient mechanism to dynamically change portfolio exposure and can be successfully used to construct robust portfolios that perform well during equity market drops. We start with a classical 60 percent Bonds/ 40 percent Stocks portfolio with monthly rebalancing that...

We discuss performance of some known market anomalies like equal-weighted index, low volatility stock index, factor anomalies of Andrea Frazzini, Ronen Israel and Tobias J. Moskowitz. We suggest the utilization of these anomalies through dynamic risk allocation in portfolios based on these...

We propose a model where wholesale electricity prices are explained by two state variables: demand and capacity. We derive analytical expressions to price forward contracts and to calculate the forward premium. We apply our model to the PJM, England and Wales, and Nord Pool markets. Our...

Leveraged Employee Stock Ownership Plan (quot;ESOPquot;) transactions originated in the 1950s, yet there are still unresolved valuation issues that arise from a complex set of operating expenses, financing structures and contingent claims that are unique to leveraged ESOPs. Although complex,...

Technical analysis, also known as quot;charting,quot; has been a part of financial practice for many decades, but this discipline has not received the same level of academic scrutiny and acceptance as more traditional approaches such as fundamental analysis. One of the main obstacles is the...