No abstract

We consider the problem of minimizing capital at risk in the Black-Scholes setting. The portfolio problem is studied given the possibility that a correlation constraint between the portfolio and a financial index is imposed. The optimal portfolio is obtained in closed form. The effects of the correlation constraint are explored; it turns out that this portfolio constraint leads to a more diversified portfolio.

We consider the problem of minimizing capital at risk in the Black-Scholes setting. The portfolio problem is studied given the possibility that a correlation constraint between the portfolio and a financial index is imposed. The optimal portfolio is obtained in closed form. The effects of the correlation constraint are explored; it turns out that this portfolio constraint leads to a more diversified portfolio.

In a misspecified social learning setting, agents are condescending if they perceive their peers as having private information that is of lower quality than it is in reality.Applying this to a standard sequential model, we show that outcomes improve when agents are mildly condescending. In contrast, too much condescension leads to bad outcomes, as does anti-condescension.

I introduce a dynamic model of random search where ex ante heterogeneous agents with unknown abilities match with a variety of projects. There is incomplete yet symmetric information about the agents' types. Interpreting the posterior belief about the agents' ability as their reputation, I study the outcomes of the economy (namely the endogenous matching sets and the steady-state distributions) when the success or failure of the projects create feedback effects: reputational externalities and spillovers in the population of projects. In the former case when the meeting rate of each agent is inversely impacted by the distribution of other agents' reputation, the proportion of agents who are both high ability and inactive is inefficiently high, and the projects suffer from early termination. When there are positive spillovers from the low-type to the high-type projects, increased levels of search frictions could save the market from breakdown caused by the rational neglect of spillover effect in the agents' matching decisions.