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,...

Directed links in cash flow networks a↵ect the cross-section of risk premia through three channels. In a tractable consumption-based equilibrium asset pricing model, we obtain closed-form solutions that disentangle these channels for arbitrary directed networks. First, shocks that can...

This paper studies the volatility-of-volatility (VVIX) term structure. We find that the slope of the VVIX, defined as VVIX' second principal component, predicts excess returns of S&P500 and VIX traddles. Its informational content is incremental to the VIX term structure and the variance risk...

We show that the widely documented negative relation between idiosyncratic volatility (IVOL) and expected returns can be explained by the mean reversion of stocks' idiosyncratic volatilities. We use option-implied information to extract the mean reversion speed of IVOL in an almost model-free...

This paper studies the effects of introducing storable inputs into a general equilibrium model of endogenous growth. We explicitly account for an occasionally binding non-negativity constraint on storage. To solve the model, we rely on global non-linear solution methods, allowing us to make...

Close-to-zero interest rates challenge standard economic models in which zero lower bound (ZLB) is absent. We estimate a recursive utility model which features time-varying latent expected real growth, expected inflation, and stochastic inflation volatility. Using an approximate solution to bond...

In an uncertain volatility model where only the stock and the money market account are traded, the upper price bound of a European claim is given by the solution of a Black-Scholes-Barenblatt equation. If an additional hedge instrument is available, the price bound can be tightened. This is also...

We generalize and extend the long-run risk model by Drechsler and Yaron (201'7 by separating the processes for the jump intensity and the stochastic conditional variance. Furthermore we replace their Ornstein-Uhlenbeck specification for the long-run mean of the conditional variance by a...

We study a long-run risk model with a stochastic consumption growth rate, a stochastic volatility, a stochastic jump intensity, and a stochastic mean reversion level for the latter two processes. First, using a square-root specification instead of the Ornstein-Uhlenbeck process suggested by...

We study the implications of the quality of information about the business cycle for the pricing of defensive and cyclical stocks in a general equilibrium framework. We rely on a two-tree Lucas-style endowment economy in which the business cycle is modeled as an unobservable mean reverting...