When an asset is completely liquid, an investor can realize his desirable strategy. But when the asset is not sufficiently liquid, the investor cannot trade the asset continuously and his strategy is restricted. He has to consider the risk of the failure of the trade. In this paper a risky asset is traded at the random times and an investor has a power utility function. In this situation we sol...

When the asset is completely liquid, the investor can realize his desirable strategy. But when the asset is not sufficiently liquid, the investor cannot trade the asset continuously and the strategy is restricted. He has to consider the risk of the failure of the trade. In this paper the risky asset is traded at the random times and the investor has the power utility function. In this situation...

Many institutional investors periodically adopt an asset allocation policy that specifies target percentages of value for each of several asset classes. Typically a policy is set by a fund’s board after evaluating the implications of a set of alternative policies. The staff is then instructed to implement the policy, usually by maintaining the actual allocation to each asset class within a spec...

We present a model incorporating both social and economic components, and analyze their interaction. The notion of a social asset, an attribute that has value only because of the social institutions governing society, is introduced. In the basic model, agents match on the basis of income and unproductive attributes. An attribute has value in some equilibrium social institutions (matching patter...

Asset-liability mismatch in balance sheet of banks shows serious challenges in banks because of the traditional methods of recording assets and liabilities at book value in Iran. The Central Bank of the country motivated and advised banks to take concrete steps in minimizing the mismatch in the asset-liability composition. This paper attempts to suggest a micro funded framework that can evaluat...

——————————————————————————————————— We develop a model where agents can allocate their wealth between a liquid asset, which can be used to purchase consumption goods, and an illiquid asset, which represents a better store of value. Should a consumption opportunity arise, agents may visit a frictional “over-the-counter” secondary asset market where they can exchange illiquid for liquid assets. W...

The pricing and control of firms’ debt has become a major issue since Merton’s (1974) seminal paper. Yet, Merton as well as other recent theories presume that the asset value of the firm is independent of the debt of the firm. However, when using debt finance firms may have to pay a premium for an idiosyncratic default risk and may face debt constraints. We demonstrate that firm specific debt c...

The paper models the links between financial fragility, asset markets and monetary policy. It is shown that central bank’s concern about the cost of financial disruption may generate an asymmetric response, thus contributing to the creation of an asset price bubble. In an economy with a highly leveraged financial structure, the central bank has an incentive to prevent a “run” on financial inter...

This paper solves the dynamic investment problem of a risk averse manager compensated with a call option on the assets he controls. Under the manager’s optimal policy, the option ends up either deep in or deep out of the money. As the asset value goes to zero, volatility goes to infinity. However, the option compensation does not strictly lead to greater risk seeking. Sometimes, the manager’s o...