Publications

• Tjeerd de Vries and Alexis Toda. Capital and Labor Income Pareto Exponents across Time and Space. Review of Income and Wealth (2022)
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  We estimate capital and labor income Pareto exponents across 475 country-year observations that span 52 countries over half a century (1967–2018). We document two stylized facts: (i) capital income is more unequally distributed than labor income in the tail; namely, the capital exponent (1–3, median 1.46) is smaller than labor (2–5, median 3.35), and (ii) capital and labor exponents are nearly uncorrelated. To explain these findings, we build an incomplete market model with job ladders and capital income risk that gives rise to a capital income Pareto exponent smaller than but nearly unrelated to the labor exponent. Our results suggest the importance of distinguishing income and wealth inequality.

Working Papers

• Tjeerd de Vries and Alexis Toda. Robust Asset-Liability Management (2025)
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  How should financial institutions hedge their balance sheets against interest rate risk when managing long-term assets and liabilities? We address this question by proposing a bond portfolio solution based on ambiguityaverse preferences, which generalizes classical immunization and accommodates arbitrary liability structures, portfolio constraints, and interest rate perturbations. In a further extension, we show that the optimal portfolio can be computed as a simple generalized least squares problem, making the solution both transparent and computationally efficient. The resulting portfolio also reduces leverage by implicitly regularizing the portfolio weights, which enhances out-of-sample performance. Numerical evaluations using both empirical and simulated yield curves from a no-arbitrage term structure model support the feasibility and accuracy of our approach relative to existing methods.
• Tjeerd de Vries, Yanki Kalfa , Allan Timmermann and Russel Wermers. Scale Economies, Bargaining Power, and Investment Performance: Evidence from Pension Plans (2025)
  
  • Winner of ICPM Research Award
  PDF | Appendix
  We explore the relation between the size of a defined benefit pension plan and its choice of active vs. passive management, internal vs. external management, and public vs. private market investments. We document significant scale economies in pension plan investments: large plans possess greater bargaining power over their external managers in negotiating fees, and have access to better performing actively managed funds, relative to small plans. Further, switching from external to internal management (within an asset class) is associated with substantially lower per-unit costs for large plans, especially in private assets, reinforcing the enhanced bargaining power conferred by their scale.
• Tjeerd de Vries. A Tale of Two Tails: A Model-free Approach to Estimating Disaster Risk Premia and Testing Asset Pricing Models (2024)
  
  • Winner of Walter Heller Memorial Prize (Best 3rd Year Paper)
  • Winner of Richard A. Libby Award
  PDF | Slides
  I propose a model-free methodology to assess the impact of disaster risk on the market return. Using stock returns and the risk-neutral quantile function observed from option prices, I employ quantile regressions to estimate local dispersions between the physical and risk-neutral distributions. The results indicate substantial disparities in the left tails of both distributions, while the right tails remain nearly identical. These local differences suggest that disaster risk drives the equity premium, leading to high volatility in the stochastic discount factor. Additionally, I introduce a risk-adjustment term that captures a significant portion of the disparity between physical and risk-neutral distributions in the left-tail. I interpret the risk-adjustment term as a real time measure of the Peso problem and find that it fluctuates significantly over time. During the peak of the 2008 financial crisis and the 2020 Covid-19 crisis, the risk-adjustment term predicts a 5% probability of a market return of -28% or lower. Both findings provide model-free evidence of time-varying disaster risk.
• Tjeerd de Vries. Market Consistent Valuation of Deferred Taxes (2020)
  PDF | Slides
  This paper develops a continuous time framework to value deferred taxes using option pricing techniques. The valuation renders a market consistent pricing procedure, meaning that the final price of tax deferrals depends on parameters observed in the market. The framework is flexible enough to value deferred taxes like loss carryforward, loss carryback or liabilities arising from temporary differences. In addition, our approach unravels the influence of leverage on deferred tax values and proposes an alternative to the Modigliani-Miller theorem. A simulation study over multiple time horizons shows that carryforward value is negatively influenced by leverage, whereas carryback and latent tax liability values increase. An empirical application serves to illustrate the practical use of our model: the loss absorbing capacity of deferred taxes (LAC DT) for European insurers.