Widespread violations of stochastic dominance by one-month Samp;P 500 index call options over 1986-2006 imply that a trader can improve expected utility by engaging in a zero-net-cost trade net of transaction costs and bid-ask spread. Although pre-crash option prices conform to the...

The tax law confers upon the investor a timing option--to realize capital losses and defer capital gains. With the tax rate on long term capital gains and losses being about half the short term rate, the tax law provides a second timing option--to realize capital losses short term and realize...

By applying stochastic dominance arguments, upper bounds on the reservation write price of European calls and puts and lower bounds on the reservation purchase price of these derivatives are derived in the presence of proportional transaction costs incurred in trading the underlying security....

The assumption that bondholders follow either a buy-and-hold or a continuous realization trading policy, rather than the optimal trading policy,is at variance with reality and, as we demonstrate, may seriously bias the estimation of the yield curve and the implied tax bracket of the marginal...

The mean, co-variability, and predictability of the return of different classes of financial assets challenge the rational economic model for an explanation. The unconditional mean aggregate equity premium is almost seven percent per year and remains high after adjusting downwards the sample...

The Euler equations of consumption are tested on the household consumption of non-durables and services, reconstructed from the CEX database. The estimated relative risk aversion coefficient of the representative household decreases, and the estimated unexplained mean equity premium decreases,...

We study consumption-based asset pricing models which allow for both habit persistence and durability of consumption goods. using quarterly consumption and asset return data for six countries. We estimate the parameters representing habit persistence or durability. risk version and time...

Ongoing questions on the historical mean and standard deviation of the return on equities and bonds and on the equilibrium demand for these securities are addressed in the context of a stationary, overlapping-generations economy in which consumers are subject to a borrowing constraint. The key...

The central premise of the Black and Scholes [Black, F., Scholes, M. (1973). The pricing of options and corporate liabilities. Journal of Political Economy 81, 637-659] and Merton [Merton, R. (1973). Theory of rational option pricing. Bell Journal of Economics and Management Science 4, 141-184]...

We show that shocks to household consumption growth are negatively skewed, persistent, countercyclical, and drive asset prices. We construct a parsimonious model where heterogeneous households have recursive preferences. A single state variable drives the conditional cross-sectional moments of...