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Option Pricing When Correlations are Stochastic: An Analytical Framework
In this paper we develop a novel market model where asset variances–covariances evolve stochastically. In addition shocks on asset return dynamics are assumed to be linearly correlated with shocksExpand
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Long Run Risk and the Persistence of Consumption Shocks
We propose a decomposition for time series in components classified by levels of persistence. Employing this decomposition, we provide empirical evidence that consumption growth contains predictableExpand
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A multifactor volatility Heston model
We model the volatility of a single risky asset using a multifactor (matrix) Wishart affine process, recently introduced in finance by Gourieroux and Sufana. As in standard Duffie and Kan affineExpand
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The Scale of Predictability
We view economic time series as the result of a cascade of shocks occurring at different times and different frequencies (scales). We suggest that economic relations that are found to be elusive whenExpand
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Option pricing when correlations are stochastic: an analytical framework
In this paper we develop a novel market model where asset variances–covariances evolve stochastically. In addition shocks on asset return dynamics are assumed to be linearly correlated with shocksExpand
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Illiquid Assets and Optimal Portfolio Choice
The presence of illiquid assets, such as human wealth or a family owned business, complicates the problem of portfolio choice. This paper is concerned with the problem of optimal asset allocation andExpand
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Solvable Affine Term Structure Models
An Affine Term Structure Model (ATSM) is said to be solvable if the pricing problem has an explicit solution, i.e., the corresponding Riccati ordinary differential equations have a regular globallyExpand
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A Multivariate Model of Strategic Asset Allocation with Longevity Risk
Population-wide increase in life expectancy is a source of aggregate risk. Longevity-linked securities are a natural instrument to reallocate that risk. This paper extends the standardExpand
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The Relative Leverage Premium
The existing empirical evidence does not yet provide a clear understanding of how leverage and expected equity returns are related. While some studies show a positive relationship between financialExpand
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Multifractal Scaling in the Bak-Tang-Wiesenfeld Sandpile and Edge Events
A widely applicable analysis of numerical data shows that, while the distribution of avalanche areas obeys finite size scaling, that of toppling numbers is universally characterized by a full,Expand
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