Related papers: Equity Premium in Efficient Markets
In this paper, we propose an equilibrium pricing model in a dynamic multi-period stochastic framework with uncertain income streams. In an incomplete market, there exist two traded risky assets (e.g. stock/commodity and weather derivative)…
Markets efficiency implies that the stock returns are intrinsically unpredictable, a property that makes markets comparable to random number generators. We present a novel methodology to investigate ultra-high frequency financial data and…
Financial markets typically exhibit dynamically complex properties as they undergo continuous interactions with economic and environmental factors. The Efficient Market Hypothesis indicates a rich difference in the structural complexity of…
We study the ex-ante minimization of market inefficiency, defined in terms of minimum deviation of market prices from fundamental values, from a centralized planner's perspective. Prices are pressured from exogenous trading actions of…
This paper characterizes the equilibrium in a continuous time financial market populated by heterogeneous agents who differ in their rate of relative risk aversion and face convex portfolio constraints. The model is studied in an…
Decisions taken in our everyday lives are based on a wide variety of information so it is generally very difficult to assess what are the strategies that guide us. Stock market therefore provides a rich environment to study how people take…
In financial markets valuable information is rarely circulated homogeneously, because of time required for information to spread. However, advances in communication technology means that the 'lifetime' of important information is typically…
We investigate a continuous-time investment-consumption problem with model uncertainty in a general diffusion-based market with random model coefficients. We assume that a power utility investor is ambiguity-averse, with the preference to…
Through a novel approach, this paper shows that substantial change in stock market behavior has a statistically and economically significant impact on equity risk premium predictability both on in-sample and out-of-sample cases. In line…
Modern portfolio theory(MPT) addresses the problem of determining the optimum allocation of investment resources among a set of candidate assets. In the original mean-variance approach of Markowitz, volatility is taken as a proxy for risk,…
Risk-neutral pricing dictates that the discounted derivative price is a martingale in a measure equivalent to the economic measure. The residual ambiguity for incomplete markets is here resolved by minimising the entropy of the price…
We calculate explicitly the optimal strategy for an investor with exponential utility function when the stock price follows an autoregressive Gaussian process. We also calculate its performance and analyse it when the trading horizon tends…
We consider an expected utility maximization problem where the utility function is not necessarily concave and the time horizon is uncertain. We establish a necessary and sufficient condition for the optimality for general non-concave…
We study fair allocation of constrained resources, where a market designer optimizes overall welfare while maintaining group fairness. In many large-scale settings, utilities are not known in advance, but are instead observed after…
In response to growing demand for resilient and transparent financial instruments, we introduce a novel framework for replicating private equity (PE) performance using liquid, AI-enhanced strategies. Despite historically delivering robust…
We study the behavior of simple models for financial markets with widely spread frequency either in the trading activity of agents or in the occurrence of basic events. The generic picture of a phase transition between information efficient…
It is shown that the axioms for coherent risk measures imply that whenever there is an asset in a portfolio that dominates the others in a given sample (which happens with finite probability even for large samples), then this portfolio…
We study market-consistent valuation of liability cash flows motivated by current regulatory frameworks for the insurance industry. Building on the theory on multiple-prior optimal stopping we propose a valuation functional with sound…
I characterize optimal government policy in a sticky-price economy with different types of consumers and endogenous financial constraints in the banking and entrepreneurial sectors. The competitive equilibrium allocation is constrained…
We revisit the problem of portfolio selection, where an investor maximizes utility subject to a risk constraint. Our framework is very general and accommodates a wide range of utility and risk functionals, including non-concave utilities…