Phil Dybvig

Mathematical Foundations for Finance (FIN500J): Syllabus - course materials

Most of my materials are still at my home page at Washington University in Saint Louis.

Diversification and Performance Does the power of diversification preclude superior performance by active managers with large portfolios? In a new paper, The Fallacy of Large Numbers, it is shown that there is no logical inconsistency between superior performance and holding a large, well-diversified portfolio. This paper was presented as a keynote address (associated slides) for the meetings of the Midwest Finance Association in Saint Louis, Missouri on March 27.

Cash-balance Pension Plans Cash-balance plans are so-called ``hybrid plans'' that have the look-and-feel of a defined-contribution plan but are regulated like defined-benefit plans. Dave Brown, Bill Marshall, and I have published an applied paper The Cost and Duration of Cash-Balance Pension Plans (308K PDF) in the Financial Analysts Journal, that analyzes the feature of the liabilities represented by these plans. These liabilities have an effective duration much shorter than some people have assumed.

Transaction Costs make it unprofitable to rebalance all the way to the ideal portfolio. My paper, Mean-Variance Portfolio Rebalancing with Transaction Costs, contains a single period analysis of rebalancing with transaction costs offers many interesting insights. For example, a traditional futures overlay can probably be dominated by an asymmetric strategy that takes better advantage of the difference in expected return between the managed equity portfolio and futures.

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