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Department of School of Management

Eisenberg, Larry

Contact Info
Title: Associate Professor of Finance
Office: 4029 CAB
Hours: T 4-6 W 4-6
Phone: 973-642-7263
Dept: School of Management

Academic Interests: management, finance

About Me

Dr. Eisenberg has more than fifteen years developing models and trading in equities, foreign exchange, fixed-income, credit and insurance derivatives. Institutions he has worked for or consulted for include: Salomon Brothers, Lehman Brothers, the Atlanta Fed, Los Alamos National Labs, Sanwa Financial Products and Swiss Re. At the Atlanta Fed, Larry, as a member of a small group of economists, advised the President of the Atlanta Fed on macroeconomic policy prior to FOMC Meetings. From his experience at Swiss Re, he developed a technique to price and control the risk of derivatives that can be only partially hedged. These include many credit options and options on insurance derivatives. He co-authored a model to determine the effects of default, and systemic risk in the banking system. He has given presentations in Australia, Canada, China, England, Israel, Italy, Mexico, Poland, Portugal, Scotland, Singapore, Switzerland, Taiwan, and the United States. His Ph.D. is in Economics from the University of Pennsylvania. Prior to finishing his Ph.D. he was a floor trader on the Chicago Board Options Exchange.


  • University of Pennsylvania, PhD, 1987.

Courses I Teach

No teaching information found matching this UCID.



My financial engineering research is on pricing models that a firm can use: 1) with stochastic volatility (standard deviation of stock returns); 2) with “exotic” features and 3) with underlying that cannot be hedged (incomplete markets). My work in risk management consists of models of individual securities that can be used by a firm and also models about markets that can be used by regulators and central banks (such as the Fed). 
This research has implications for practitioners and regulators in financial engineering. 1) I developed and published one of the first quanto models (actually a class of them). Currently, most if not all, investment and money-center banks use equity, commodity and fixed-income and credit quanto option pricing models. 2) I developed one of the first stochastic volatility option pricing models using Ito Calculus. Subsequently with Bob Jarrow I published this work in a martingale framework. 3) With Tom Noe I developed and published a paper that is seminal in the study of systemic risk. Economists at central banks have cited and used this paper to study the robustness of their banking systems to default propagation.
Much of my financial engineering research is motivated by my experience in the financial markets as a practitioner. While a floor trader at the Chicago Board Options exchange I saw that both the implied and realized historical volatility changed stochastically.
While working at the equity-options trading desk at Salomon Brothers, I created with a way to securitize, price and hedge international portfolio insurance. The result was one of the first “quanto” models of which there are now many. An example of a quanto is a put on the S&P 500 with the US dollar payoff converted in Japanese yen at exchange rate specified at the time the quanto is sold. Such a contract protects a Japanese investor from a decrease in the yen price of a dollar. 
Models that I have developed where some underlying cannot be hedged are motivated by my work at Swiss Re on pricing, hedging and marking-to-market options written on multiple underlying with insurance payouts. Because most insurance policies do not have a liquid two-way market, in contrast to, foreign exchange these policies cannot be hedged and the Black-Scholes, Merton assumption of complete markets (that all relevant risks can be perfectly hedged) would be a bad assumption to use. In fact, it can be argued that one of the causes for the financial meltdown of 2008 was the dangerous use of this assumption when pricing CDO’s.
My risk management models were initially motivated by a year that I was an economist at the Atlanta Fed and a summer when I was at the Santa Fe Institute. Subsequently I co-authored a paper on systemic risk. Prior to this paper, the literature on systemic risk was non-quantitative. We created a mathematically rigorous technique for determining “who is left with how much” when some banks in a banking network default. Given the current state of our financial system, systemic risk is of great interest in both the academic and popular press.
One of the VAR papers derives the reservation price of a policy by an insurance company given its diversified portfolio of policies and investments and its VAR constraint given by regulators (the constraint on the probability that the firm’s equity will fall below some specified minimum level). This result applies to any financial firm with such a constraint. I worked on this problem because two very important sets of regulations Basel II (bank regulations) and Solvency II (EU insurance regulations) are stated in terms of VAR constraints.
Sometimes regulations meant to make the financial system more stable can have the opposite effect. Currently I have two papers under review that show how VAR-constraints can cause firms to take greater risks when they are in financial trouble. After the financial meltdown of 2008 there are going to many changes to financial regulation. These two papers contribute to our understanding of the counter-intuitive effects of VAR regulations. They do this by analyzing the risk premium to the price derived in one of my earlier papers when there is a VAR constraint.


  1. Shi, W., Eisenberg, L. and Lee, C. F. (2008).   Intraday Patterns, Announcement Effects and Volatility Persistence in the Japanese Government Bond Futures Market. forthcoming   Pacific Basin Markets and Policies, Vol. 11, Issue 4, pp. 511-530.
  2. Eisenberg, L. K. (2007).   The Marginal Price of Risk with A Var Constraint. Journal of Risk Vol. 9, No. 4, 21-37.
  3. Eisenberg, L. K. & Hsieh, C. T. (2007).   Implementing Risk Management Systems with a Benchmark.  International Journal of Electronic Finance, Vol. 1, No. 3, pp. 293-303.
  4. Eisenberg, L. K. & Noe, T. (2001).   Systemic Risk in Financial Systems. Management Science, 47 (2).
  5. Eisenberg, L. K. (1995).   A Summary: Boolean Networks Applied to Systemic Risk. Progress in Neural Processing, 2, 436-451.
  6. Eisenberg, L. K. & Jarrow, R. (1994).   Option Pricing with Random Volatilities in Complete Markets. Journal of Quantitative Finance and Accounting, 4, 5-17.
  7. Eisenberg, L. K. (1993).   One Step Beyond. Risk Magazine.
  8. Eisenberg, L. K. (1993).   Somebody Else´s Money. Risk Magazine.
  9. Eisenberg, L. K. & Babbel, D. (1993).   Quantity-Adjusting Options and Forwards. Journal of Financial Engineering, 2 (2), 89-126.
  10. Eisenberg, L. K. & Babbel, D. (1993).   Generalized Put-Call Parity. Journal of Financial Engineering, 1 (3), 243-263.