We perform a general equilibrium analysis in a complete markets economy whenthe dividend follows a jump-diffusion process with stochastic volatility. Agents haveCRRA utility, but differ with respect to their degree of risk aversion. The keyoutput of our analysis is the structure of the...

In this paper we perform a general equilibrium analysis when the dividend followsa jump-diffusion process with stochastic volatility, where both the dividend itselfand its volatility can jump. We work in a complete markets economy and assumethat agents have CRRA utility, but can differ with...

Variance contracts permit the trading of ’variance risk’, i.e. the risk that the realizedvariance of stock returns changes randomly over time. We discuss why investorsmight want to trade this type of risk, and why they might prefer a variance contractto standard calls and puts for this...

Model mis-specification can cause substantial utility losses in portfolio planning.In this paper, we compare two approaches to cope with this problem,robust control and learning. We derive the optimal portfolio strategies and theutility losses due to model mis-specification. Surprisingly,...

This paper analyzes the properties of and the differences between derivative pricingmodels that include stochastic volatility or stochastic jumps or both of these riskfactors. The focus is on the pricing of European options. In a first step, we discussthe impact of the parameters in stochastic...