i.w.martin@lse.ac.uk

What is the Expected Return on the Market?, September, 2014

Averting Catastrophes: The Strange Economics of Scylla and Charybdis (with Robert Pindyck), June, 2014

NBER Working Paper 20215

Slides

The Long Bond (with Steve Ross), June, 2013

Slides

*long bond*, a zero-coupon bond that pays off in the far-distant future, under the assumptions that (i) the fixed-income market is complete and (ii) the state vector that drives interest rates follows a Markov chain. We show that if the pricing kernel is transition-independent—in particular, if there is an investor with separable utility or Epstein–Zin preferences—then the yield curve must slope up on average, and derive a formula that expresses the expected return on the long bond in terms of the prices of long bond options.

Simple Variance Swaps, January, 2013

NBER Working Paper 16884

Slides

*simple variance swap*, a more robust relative of the variance swap that can be priced and hedged even if the underlying asset's price can jump, and constructs SVIX, an index based on simple variance swaps that measures market volatility. SVIX is consistently lower than VIX in the time series, which rules out the possibility that the market return and stochastic discount factor are conditionally lognormal. The SVIX index points to an equity premium that—in contrast to the prevailing view in the literature—is extraordinarily volatile and that spiked dramatically at the height of the recent crisis.

The Forward Premium Puzzle in a Two-Country World, March, 2013

NBER Working Paper 17564

Slides

How Much Do Financial Markets Matter? Cole–Obstfeld Revisited, November, 2010

The Lucas Orchard, *Econometrica (2013), 81:1:55-111*

Supplemental Material

Consumption-Based Asset Pricing with Higher Cumulants, *Review of Economic Studies (2013), 80:2:745-773*

Local Version

Online Appendix

*cumulant-generating function*. I use the framework to analyze economies with rare disasters, and argue that the importance of such disasters is a double-edged sword: parameters that govern the frequency and sizes of rare disasters are critically important for asset pricing, but extremely hard to calibrate. I show how to sidestep this issue by using observable asset prices to make inferences without having to estimate higher moments of the underlying consumption process. Extensions of the model allow consumption to diverge from dividends, and for non-i.i.d. consumption growth.

On the Valuation of Long-Dated Assets, *Journal of Political Economy (2012), 120:2:346-358*

Online Appendix

*market* in a *lognormal* world if the market's Sharpe ratio is higher than its volatility, as appears to be the case in practice.

Disasters Implied by Equity Index Options (with David Backus and Mikhail Chernov), *Journal of Finance (2011), 66:6:1969-2012*

Disasters and the Welfare Cost of Uncertainty, *American Economic Review (2008), Papers & Proceedings, 98:2:74-78*