Domenico Cuoco
- Associate Professor of Finance
Contact Information
- Primary Email:
cuoco@wharton.upenn.edu - Office Phone:
(215) 898-8290
- office Address:
3257 Steinberg-Dietrich Hall
3620 Locust Walk
Philadelphia, PA 19104
Research Interests: models of the term structure, optimal policies and equilibrium with incomplete markets and portfolio constraints, pricing and hedging of derivative instruments
Links: CV
Overview
Education
PhD, University of California at Berkeley, 1994; MBA, University of California at Berkeley, 1992; BS, Libera Università Internazionale degli Studi Sociali, Rome, 1987
Career and Recent Professional Awards; Teaching Awards
University of Pennsylvania Greek System Outstanding Professor Award, 1996
Academic Positions Held
Wharton: 1994-present. Visiting appointment: Universitat Pompeu Fabra, Spain
Other Positions
Consultant, Istituto Mobiliare Italiano, Rome, Italy, 1991; Summer Associate, McKinsey & Company, Inc., Milan, Italy, 1990; Economist, Research Department, Bank of Italy, Rome, 1988-89
Professional Leadership 2005-2009
Associate Editor, Journal of Economic Theory, 1997-present; Associate Editor, Review of Financial Studies, 1998-present
Research
Domenico Cuoco (Forthcoming), Equilibrium Prices in the Presence of Delegated Portfolio Management.
Domenico Cuoco, H. He, S. Isaenko (2008), Optimal Dynamic Trading Strategies with Risk Limits, Operations Research, 56 (), pp. 358-368.
Domenico Cuoco and H. Liu (2006), An Analysis of VaR-based Capital Requirements, Journal of Financial Intermediation, 15 (), pp. 362-395.
Domenico Cuoco and J. Cvitanic (1998), Optimal Consumption Choices for a ‘Large’ Investor, Journal of Economic Dynamics and Control, 22 (1998). 10.1016/S0165-1889(97)00065-1
Abstract: This paper examines the optimal consumption and investment problem for a ‘large’ investor, whose portfolio choices affect the instantaneous expected returns on the traded assets. Alternatively, our analysis can be interpreted in terms of an optimal growth problem with nonlinear technologies. Existence of optimal policies is established using martingale and duality techniques under general assumptions on the securities' price process and the investor's preferences. As an illustration of our characterization result, explicit solutions are provided for specific examples involving an agent with logarithmic utilities and a generalized two-factor version of the CCAPM is derived. The analogy of the consumption problem examined in this paper to the consumption problem with constraints on the portfolio choices is emphasized.
Domenico Cuoco and S. Basak (1998), An Equilibrium Model with Restricted Stock Market Participation, Review of Financial Studies, 11 (1998).
Abstract: This article solves the equilibrium problem in a pure-exchange, continuous-time economy in which some agents face information costs or other types of frictions effectively preventing them from investing in the stock market. Under the assumption that the restricted agents have logarithmic utilities, a complete characterization of equilibrium prices and consumption/investment policies is provided. A simple calibration shows that the model can help resolve some of the empirical asset pricing puzzles.
Domenico Cuoco (1997), Optimal Consumption and Equilibrium Prices with Portfolio Constraints and Stochastic Income, Journal of Economic Theory, 72 (1997). 10.1006/jeth.1996.2207
Abstract: This paper examines the intertemporal optimal consumption and investment problem in the presence of a stochastic endowment and constraints on the portfolio choices. Short-sale and borrowing constraints, as well as incomplete markets, can be modeled as special cases of the class of constraints we consider. Existence of optimal policies is established under fairly general assumptions on the security price coefficients and the individual's utility function. This result is obtained by using martingale techniques to reformulate the individual's dynamic optimization problem as an equivalent static one. An explicit characterization of equilibrium risk premia in the presence of portfolio constraints is also provided. In the unconstrained case, this characterization reduces to Consumption-based Capital Asset Pricing Model.Journal of Economic LiteratureClassification Numbers: G11, G12, C61, D52, D91. * This is a revised version of the second chapter of my doctoral dissertation at the University of California at Berkeley. Financial support from the Haas School of Business is gratefully acknowledged. I thank Hua He and JakImage a CvitaniImage for several conversations on this topic and Darrell Duffie, Christina Shannon, Jiang Wang, Fernando Zapatero, and seminar participants at the Courant Institute, the Massachusetts Institute of Technology, Northwestern University, the University of Pennsylvania, the Instituto Tecnologico Autonomo de Mexico (ITAM), the 1995 meeting of the Western Finance Association, the 1995 meeting of the European Finance Association, the 1995 INFORMS Applied Probability Conference, and the 1996 CIRANO/CRM Workshop on the Mathematics of Finance for comments. JakImage a CvitaniImage pointed out a mistake in an early version of this paper. I am of course solely responsible for any remaining errors.
Teaching
Current Courses (Fall 2024)
FNCE7170 - Financial Derivatives
This course covers one of the most exciting and fundamental areas in finance. Financial derivatives serve as building blocks to understand broad classes of financial problems, such as complex asset portfolios, strategic corporate decisions, and stages in venture capital investing. The main objective of this course is build intuition and skills on (1) pricing and hedging of derivative securities, and (2) using them for investment and risk management. In terms of methodologies, we apply the non-arbitrage principle and the law of one price to dynamic models through three different approaches: the binomial tree model, the Black-Scholes-Merton option pricing model, and the simulation-based risk neutral pricing approach. The course covers a wide range of applications, including the use of derivatives in asset management, the valuation of corporate securities such as stocks and corporate bonds with embedded options, interest rate and credit derivatives, as well as crude oil derivatives. We emphasize practical considerations of implementing strategies using derivatives as tools, especially when no-arbitrage conditions do not hold.
FNCE7170001 ( Syllabus )
All Courses
FNCE2170 - Financial Derivatives
This course covers one of the most exciting and fundamental areas in finance. Financial derivatives serve as building blocks to understand broad classes of financial problems, such as complex asset portfolios, strategic corporate decisions, and stages in venture capital investing. The main objective of this course is build intuition and skills on (1) pricing and hedging of derivative securities, and (2) using them for investment and risk management. In terms of methodologies, we apply the non-arbitrage principle and the law of one price to dynamic models through three different approaches: the binomial tree model, the Black-Scholes-Merton option pricing model, and the simulation-based risk neutral pricing approach. The course covers a wide range of applications, including the use of derivatives in asset management, the valuation of corporate securities such as stocks and corporate bonds with embedded options, interest rate and credit derivatives, as well as crude oil derivatives. We emphasize practical considerations of implementing strategies using derivatives as tools, especially when no-arbitrage conditions do not hold. STAT 1020 may be taken concurrently.
FNCE2250 - Fixed Income Securities
This course covers fixed income securities (including fixed income derivatives) and provides an introduction to the markets in which they are traded, as well as to the tools that are used to value these securities and to assess and manage their risk. Quantitative models play a key role in the valuation and risk management of these securities. As a result, although every effort will be made to introduce the various pricing models and techniques as intuitively as possible and the technical requirements are limited to basic calculus and statistics, the class is by its nature quantitative and will require a steady amount of work. In addition, some computer proficiency will be required for the assignments, although familiarity with a spreadsheet program (such as Microsoft Excel) will suffice. In addition to course prerequisites, FNCE 1010 is recommended.
FNCE7170 - Financial Derivatives
This course covers one of the most exciting and fundamental areas in finance. Financial derivatives serve as building blocks to understand broad classes of financial problems, such as complex asset portfolios, strategic corporate decisions, and stages in venture capital investing. The main objective of this course is build intuition and skills on (1) pricing and hedging of derivative securities, and (2) using them for investment and risk management. In terms of methodologies, we apply the non-arbitrage principle and the law of one price to dynamic models through three different approaches: the binomial tree model, the Black-Scholes-Merton option pricing model, and the simulation-based risk neutral pricing approach. The course covers a wide range of applications, including the use of derivatives in asset management, the valuation of corporate securities such as stocks and corporate bonds with embedded options, interest rate and credit derivatives, as well as crude oil derivatives. We emphasize practical considerations of implementing strategies using derivatives as tools, especially when no-arbitrage conditions do not hold.
FNCE7250 - Fixed Income Securities
This course covers fixed income securities (including fixed income derivatives) and provides an introduction to the markets in which they are traded, as well as to the tools that are used to value these securities and to assess and manage their risk. Quantitative models play a key role in the valuation and risk management of these securities. In addition to course prerequisites, FNCE 6130 is recommended but not required.
FNCE9220 - Continuous-Time Fin Econ
This course covers some advanced material on the theory of financial markets developed over the last two decades. The emphasis is on dynamic asset pricing and consumption choices in a continuous time setting. The articles discussed include many classical papers in the field as well as some of the most recent developments. The lectures will emphasize the concepts and technical tools needed to understand the articles.
Awards and Honors
- University of Pennsylvania MBA Excellence in Teaching Award, 1970