[This paper derives and analyzes dynamic timing strategies of a fund manager with private information. Endogenous timing strategies generated by various information structures and skills, and associated fund styles, are identified. Endogenous fund returns are characterized in the public information of an uninformed observer. Timing components are identified. The paper provides foundations for regression analyses of fund returns and tests of market timing.]

[A new decomposition of the optimal portfolio, in dynamic models with von Neumann-Morgenstern preferences and Ito prices, is established. The formula rests on a change of numéraire that uses pure discount bonds as units of account. The dynamic hedging demand has two components. The first hedge insures against fluctuations in an optimally designed bond with a maturity date matching the investor's horizon. The second hedge immunizes against fluctuations in the market price of risk in the bond numéraire. Various applications are examined. New results concerning the behavior of extremely risk-averse individuals, the demand for bonds and its long-horizon limit, and the optimal portfolio in incomplete marles are derived.]

This article studies an intertemporal economy with liquidity constrained and unconstrained individuals. We use a stopping time approach to solve the finite horizon-constrained consumption portfolio problem with constant relative risk aversion and to examine the structure of equilibrium. The impact of the constraint on the optimal consumption and the financing portfolio is assessed. The equilibrium state price density is related to the exercise boundary of an American-style contingent claim with nonlinear payoff. This stopping time characterization enables us to prove the existence of an equilibrium and can be implemented numerically. Properties of equilibrium bond and stock returns are examined.

[We provide a simple binomial framework to value American-style derivatives subject to trading restrictions. The optimal investment of liquid wealth is solved simultaneously with the early exercise decision of the nontraded derivative. No-short-sales constraints on the underlying asset manifest themselves in the form of an implicit dividend yield in the risk-neutralized process for the underlying asset. One consequence is that American call options may be optimally exercised prior to maturity even when the underlying asset pays no dividends. Applications to executive stock options (ESO) are presented: it is shown that the value of an ESO could be substantially lower than that computed using the Black-Scholes model. We also analyze nontraded payoffs based on a price that is imperfectly correlated with the price of a traded asset.]

[We examine intertemporal asset pricing when short sales are constrained in proportion to the value of an investor's portfolio. All assets' prices exceed every investor's marginal utility of consumption-based valuation of the associated dividends if every investor finds himself constrained in some asset in some state; we exhibit such an equilibrium. An asset's price decomposes into three (investor-specific) components: the consumption value of its dividends, a speculative value premium, and a collateral value premium. The validity of the no-arbitrage pricing approach is shown to depend critically on the difference between real securities and their synthetic counterparts.]

[We develop lower and upper bounds on the prices of American call and put options written on a dividend-paying asset. We provide two option price approximations, one based on the lower bound (termed LBA) and one based on both bounds (termed LUBA). The LUBA approximation has an average accuracy comparable to a 1,000-step binomial tree with a computation speed comparable to a 50-step binomial tree. We introduce a modification of the binomial method (termed BBSR) that is very simple to implement and performs remarkably well. We also conduct a careful large-scale evaluation of many recent methods for computing American option prices.]

[This article addresses the problem of valuing American call options with caps on dividend-paying assets. Since early exercise is allowed, the valuation problem requires the determination of optimal exercise policies. Options with two types of caps are analyzed: constant caps and caps with a constant growth rate. For constant caps, it is optimal to exercise at the first time at which the underlying asset's price equals or exceeds the minimum of the cap and the optimal exercise boundary for the corresponding uncapped option. For caps that grow at a constant rate, the optimal exercise strategy can be specified by three endogenous parameters.]

This paper examines the valuation of European- and American-style volatility options based on a general equilibrium stochastic volatility framework. Properties of the optimal exercise region and of the option price are provided when volatility follows a general diffusion process. Explicit valuation formulas are derived in four particular cases. Emphasis is placed on the MRLP(mean-reverting in the log) volatility model which has received considerable empirical support. In this context we examine the properties and hedging behavior of volatility options. Unlike American options, European call options on volatility are found to display concavity at high levels of volatility.

This article studies an intertemporal economy with liquidity constrained and unconstrained individuals. We use a stopping time approach to solve the finite horizonconstrained consumption portfolio problem with constant relative risk aversion and to examine the structure of equilibrium. The impact of the constraint on the optimal consumption and the financing portfolio is assessed. The equilibrium state price density is related to the exercise boundary of an American-style contingent claim with nonlinear payoff. This stopping time characterization enables us to prove the existence of an equilibrium and can be implemented numerically. Properties of equilibrium bond and stock returns are examined.