Domenico Cuoco

Domenico Cuoco
  • Associate Professor of Finance

Contact Information

  • 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

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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

Past Courses

  • FNCE225 - FIXED INCOME SECURITIES

    (Formerly FNCE 235) This course covers fixed income securities (including fixedincome 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 101 is recommended.

  • FNCE2250 - Fixed Income Securities

    (Formerly FNCE 235) 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.

  • FNCE392 - FINANCIAL ENGINEERING

    This course expands the key insights from the prior quantitative finance classes such as Derivatives and Fixed Income by using more advanced tools in statistics and applied mathematics. Its focus is on devising new and innovative financial products, often employing financial derivatives and related dynamic strategies, to address portfolio and risk-management problems. The course structure involves an introductory lectures and case discussions in the first half, and a capstone "real life" group project where students will seek to address specific problems in finance faced by sell-side banks, and buy-side corporate clients or investment funds. Each project will focus on practical economic needs and standard activities of a specific client and/or bank and the use of derivatives and dynamic strategies to solve them. Programming skills and an exposure to numerical methods are an important part of the project in this course.

  • FNCE725 - 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 613 is recommended but not required.

  • 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.

  • FNCE892 - FINANCIAL ENGINEERING

    This class covers advanced pricing models for equity, fixed income and credit derivatives. It aims at: 1) Introducing the main models used in practical applications to price and hedge derivatives; 2) Understanding their comparative advantages and limitations, as well as how they are calibrated and applied. As part of team assignments, students will be asked to calibrate and implement the models introduced in the class using software of their choice.

  • FNCE922 - 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.

  • 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.