Domenico Cuoco

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: 1994present. 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, 198889

Professional Leadership 20052009

Associate Editor, Journal of Economic Theory, 1997present; Associate Editor, Review of Financial Studies, 1998present

Domenico Cuoco and J. Cvitanic (1998), Optimal Consumption Choices for a 'Large' Investor000651), Journal of Economic Dynamics and Control, 22 (1998). 10.1016/S01651889(97)000651000651)

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 twofactor 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 pureexchange, continuoustime 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. Shortsale 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 Consumptionbased 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.

Past Courses

FNCE100 CORPORATE FINANCE

This course provides an introduction to the theory, the methods, and the concerns of corporate finance. The concepts developed in FNCE 100 form the foundation for all elective finance courses. The main topics include: 1) the time value of money and capital budgeting techniques; 2) uncertainty and the tradeoff between risk and return; 3) security market efficiency; 4) optimal capital structure, and 5) dividend policy decisions. During the fall semester there are honors sections of FNCE 100 offered. The seats in the honors sections are awarded through an application process. Please go to https://fnce.wharton.upenn.edu/programs/courseapplications/ for additional information.

FNCE206 FINANCIAL DERIVATIVES

This course covers one of the most exciting yet fundamental areas in finance: derivative securities. In the modern financial architecture, financial derivatives can be the most challenging and exotic securities traded by institutional specialists, while at the same time, they can also be the basic securities commonly traded by retail investors such as S&P Index Options, Beyond trading, the basic ideas of financial derivatives serve as building blocks to understand a much broader class of financial problems, such as complex asset portfolos, strategic corporate decisions, and stages in venture capital investing. The golobal derivatives market is one of the most fastgrowing markets, with over $600 trillion notional value in total. It is important as ever to understand both the strategic opportunities offered by these derivative instruments and risks they imply. The main objective of this course is to help students gain the intuition and skills on (1) pricing and hedging of derivative securities, and (2) using them for investment and risk management. In terms of metholologies, we apply the nonarbitrage principle and the law of one price to dynamic models through three different approaches: the binomial tree model, the BlackScholesMerton option pricing model, and the simulationbased risk neutral pricing approach. We discuss 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 derivatives, credit derivatives, as well as crude oil derivatives. In addition to theoretical disucssions, we also emphasize practical considerations of implementing strategies using derivatives as tools, especially when noarbitrage conditions do not hold.

FNCE235 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.

FNCE399 INDEPENDENT STUDY

Integrates the work of the various courses and familiarizes the student with the tools and techniques of research.

FNCE717 FINANCIAL DERIVATIVES

This course covers one of the most exciting yet fundamental areas in finance: derivative securities. In the modern financial architecture, financial derivatives can be the most challenging and exotic securities traded by institutional specialists, while at the same time, they can also be the basic securities commonly traded by retail investors such as S&P Index Options, Beyond trading, the basic ideas of financial derivatives serve as building blocks to understand a much broader class of financial problems, such as complex asset portfolos, strategic corporate decisions, and stages in venture capital investing. The golobal derivatives market is one of the most fastgrowing markets, with over $600 trillion notional value in total. It is important as ever to understand both the strategic opportunities offered by these derivative instruments and risks they imply. The main objective of this course is to help students gain the intuition and skills on (1) pricing and hedging of derivative securities, and (2) using them for investment and risk management. In terms of metholologies, we apply the nonarbitrage principle and the law of one price to dynamic models through three different approaches: the binomial tree model, the BlackScholesMerton option pricing model, and the simulationbased risk neutral pricing approach. We discuss 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 derivatives, credit derivatives, as well as crude oil derivatives. In addition to theoretical disucssions, we also emphasize practical considerations of implementing strategies using derivatives as tools, especially when noarbitrage conditions do not hold.

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. 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.

FNCE922 CONTINUOUSTIME 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.