
Affiliated Departments and Research Centers
The Computational Optimization Research Center
carries out advanced studies in the solution of difficult, large-scale optimization problems, with special focus on state-of-the-art implementation of modern algorithms.
Center for Applied Probability
provides an umbrella under which diverse research and educational activities in probability and its applications can be focused and supported.
Industrial Engineering and Operations Research
is the home to Financial Engineering, a multidisciplinary field that requests familiarity with financial theory, the methods of engineering, the tools of mathematics and the practice of programming.
The Center for Financial Engineering
is part of an interdisciplinary field of research where contributions from applied mathematics, economics, operations research, statistics and computer science have given birth to remarkable developments in market practice.
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Research
The Macroeconomics of Stakeholder Equilibria*
We propose one route to a more inclusive society. Our context is the prevailing one of high wealth inequality where stockholders alone supply the stochastic discount factor governing the allocation of capital. A large and pervasive pecuniary externality is thus imposed on non-stockholder workers, something we view as antithetical to the notion of an inclusive society.
The costs of “costless” climate mitigation
A Q Theory of Internal Capital Markets
We propose a tractable model of dynamic investment, spinoffs, financing, and risk management for a multi-division firm facing costly external finance. Our analysis formalizes
Dynamic Trading with Realization Utility
An investor receives utility bursts from realizing gains and losses at the individual-stock level (Barberis and Xiong, 2009, 2012; Ingersoll and Jin, 2013) and dynamically allocates his mental budget between risky and risk-free assets at the trading-account level. Using savings, he reduces his stockholdings and is more willing to realize losses. Using leverage, he increases his stockholdings beyond his mental budget and is more reluctant to realize losses. While leverage strengthens the disposition effect, introducing leverage constraints mitigates it.
Dynamic Banking and the Value of Deposits
We propose a theory of banking in which banks cannot perfectly control deposit flows. Facing uninsurable loan and deposit shocks, banks dynamically manage lending, wholesale funding, deposits, and equity. Deposits create value by lowering funding costs. However, when the bank is undercapitalized and at risk of breaching leverage requirements, the marginal value of deposits can turn negative as deposit inflows, by raising leverage, increase the likelihood of costly equity issuance. Banks’ inability to fully control leverage distinguishes them from non-depository intermediaries.