This monograph draws heavily on the vast body of knowledge that has been built by financial economists over the last 50 years. Its goal is to show how to solve real‐life portfolio allocation problems. We have found that using a broad range of models works best. Also, we prefer simple over...

We analyze the portfolio choice of an investor who can invest in tow risky assets (in addition to a riskless asset) and who is subject to taxes on realized capital gains. These taxes appear in the portfolio choice problem as a form of time-independent, endogenous transaction costs. Similar to...

We examine the impact of changes in output uncertainty on the price of aggregate capital and on the prices of levered claims on capital. The relation between the volatility of the marginal product of capital and the price of capital depends on the level of capital adjustment costs and the...