Philip H. Dybvig

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This article develops a model which shows that bank deposit contracts can provide allocations superior to those of exchange markets, offering an explanation of how banks subject to runs can attract deposits. Investors face privately observed risks which lead to a demand for liquidity. Traditional demand deposit contracts which provide liquidity have(More)
The article shows that in a finite-trader version of the Diamond and Dybvig model (1983), the ex ante efficient allocation can be implemented as a unique equilibrium. This is so even in the presence of the sequential service constraint, as emphasized by Wallace (1988), whereby the bank must solve a sequence of maximization problems as depositors contact it(More)
In a mean-variance world, a less risk averse agent accepts additional variance in exchange for higher expected return. This is not true in all complete markets, but we show that a similar result holds with risk and return defined as in stochastic dominance. Specifically, an agent is less risk averse than another if and only if the agent chooses a payoff(More)
Retirement flexibility and inability to borrow against future labor income can significantly affect optimal consumption and investment. With voluntary retirement, there exists an optimal wealth-to-wage ratio threshold for retirement and human capital correlates negatively with the stock market even when wages have zero or slightly positive market risk(More)
Reload options, call options whose exercise entitles the holder to new options, are compound options that are commonly issued by firms to employees. Although reload options typically involve exercise at many dates, the optimal exercise policy is simple (always exercise when in the money) and surprisingly robust to assumptions about the employee’s ability to(More)
Management of portfolios from which funds are withdrawn involves two strategic decisions at the fund level: asset allocation and the spending rule. Asset allocation and the spending rule are traditionally linked, for example, to preserve capital on average, but there should be a closer dynamic linkage between the two. This article describes a new protective(More)
This paper develops a new approach to testing dynamic linear factor models, which aims at time-variation in Jensen's alphas while using a nonparametric pricing kernel to incorporate conditioning information. In application we ̄nd that the conditional CAPM performs substantially better than the static CAPM, but still it is statistically rejected. The(More)