We extend the Consumption-based CAPM (C-CAPM) model for representative agents with different risk attitudes. We introduce the concept of expectation dependence and show that for a risk averse representative agent, it is the first-degree expectation dependence rather than the covariance that determines C-CAPM’s riskiness. We extend the assumption of risk aversion to prudence and provide a weaker...

In the model of asset appreciation advanced here, the market economy and the market of asset claims on the economy are modeled as organic (or exponential growth) processes, similar to those commonly seen in nature and the biological sciences. In this model, investors have a log-wealth utility function. Within the framework, the market risk premium is derived as the premium that balances supply ...

This paper lays out a framework for the analysis of the risk transfer role of speculators on futures markets and the impact of their trading on the production decisions of firms. We show that when speculators diversify their portfolios over a large number of markets, the equilibrium risk premium converges to an asymptotic premium, the behaviour of which is determined by the stochastic dependenc...

In this paper, we consider the problem of optimal reinsurance design, when the risk is measured by a distortion risk measure and the premium is given by a distortion risk premium. First, we show how the optimal reinsurance design for the ceding company, the reinsurance company and the social planner can be formulated in the same way. Second, by introducing the “marginal indemnification function...

We construct a new credit spread index, employing an extensive micro-level data set of secondary market prices of outstanding senior unsecured bonds over the 1973– 2009 period. Compared with the standard default-risk indicators such as the Baa-Aaa corporate bond spread and the paper-bill spread, our credit spread index is a robust predictor of future economic activity across a variety of econom...

SUMMKR 2005 O ption-adjusted spread (OAS), while a much better measure than yield or static spread, still tails short in explaining the dynamics of mortgage pricing. The standard OAS typically varies across instruments {pass-throughs, collateralized mortgage obligations, interest-only securities, principal-only securities), coupons, prepayment option moneyness, and pool seasoning stages. Premiu...