There is empirical evidence that the implied volatility smile for index options is significantly steeper than the smile for individual options. We propose a simple model setup that is able to explain this difference. When modelling the index, an aggregation restriction has to be taken into...

This paper deals with the problem of determining the correct beta for options in a Black-Scholes (BS) framework. For the purpose of testing simple asset pricing relationships previous papers used the 'local' BS beta as the measure of systematic option risk even over return intervals of discrete...

This paper studies how upstreamness and downstreamness affect industry returns in global value chains. Up- and downstreamness measure the average distance from final consumption and primary inputs, respectively, and are computed from world input-output tables. We show that downstreamness is a...

This paper breaks the correlation risk premium down into two components: a premium related to the correlation of continuous stock price movements and a premium for bearing the risk of co-jumps. We propose a novel way to identify both premiums based on dispersion trading strategies that go long...

Directed links in cash flow networks affect the cross-section of price exposures and market prices of risk in equilibrium. In an asset pricing model featuring mutually exciting jumps, we measure directedness through an asset's shock propagation capacity (spc). In the model, we prove: (i) Cash...

This paper studies asset pricing implications of heterogeneity across capital inputs. We build a general equilibrium model including two types of capital. The agents in our economy have Epstein and Zin (1989) preferences and technology is exposed to long-run risks in productivity growth....

It does. Depending on the forecast horizon, a one standard deviation increase in our measure for ambiguity about consumption volatility predicts a significant increase in average excess equity returns varying between 200 and 600 basis points annualized. The ambiguity measure we propose is easily...

In this paper, we challenge the often implemented herding measure by Chang, Cheng and Khorana (2000). They regress the cross-sectional absolute deviation of returns on the absolute and squared excess market return. A coefficient on the squared excess market return significantly smaller than zero...

The paper analyzes the robustness of stable volatility strategies, i.e. strategies in which the portfolio weight of the stock is inversely proportional to its local volatility. These strategies are optimal for a CRRA investor if the stock follows a diffusion process, the expected excess return...

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 the utility losses due to model mis-specification. Surprisingly,...