When people agree to disagree, this paper examines the impact of the disagreement among agents on market equilibrium and equity premium. Within the standard mean variance framework, we consider a market of two risky assets, a riskless asset and two (and then a continuum of) agents who have...

This study examines the interrelation between small traders' open interest and large hedging and speculation in the Canadian dollar, Swiss franc, British pound, and Japanese yen futures markets. The results, based on Granger-causality tests and vector autoregressive models, suggest that small...

The aim of this paper is to model the dependencya mong log-returns when security account prices are expressed in units of a well diversified world stock index. The paper uses the equi-weighted index EWI104s, calculated as the average of 104 world industry sector indices. The log-returns of its...

The stochastic or random nature of commodity prices plays a central role in models for valuing financial contingent claims on commodities. In this paper, by enhancing a multifactor framework which is consistent not only with the market observable forward price curve but also the volatilities and...

This paper examines the dynamics of financial distress and in particular the mechanism of transmission of shocks from the financial sector to the real economy. The analysis is performed by representing the linkages between microeconomic financial variables and the aggregate performance of the...

By taking into account conditional expectations and the dependence of the systematic risk of asset returns on micro- and macro-economic factors, the conditional CAPM with time-varying betas displays superiority in explaining the cross-section of returns and anomalies in a number of empirical...

This paper studies the impact of stochastic volatility (SV) on optimal investment decisions. We consider three different SV models: an extended Stein/Stein model, the Heston Model and an extended Heston Model with a constant elasticity variance (CEV) process and derive the the long-term optimal...

In this paper we analyze the simulated behavior of diversified portfolios in a continuous financial market. In particular, we focus on equally weighted portfolios. We illustrate that these well diversified portfolios constitute good proxies of the growth optimal portfolio. The multi-asset market...

This paper considers the problem of pricing American options when the dynamics of the underlying are driven by both stochastic volatility following a square root process as used by Heston (1993), and by a Poisson jump process as introduced by Merton (1976). Probability arguments are invoked to...

A joint model of commodity price and interest rate risk is constructed analogously to the multi-currency LIBOR Market Model (LMM). Going beyond a simple "re-interpretation" of the multi-currency LMM, issues arising in the application of the model to actual commodity market data are specifically...