Related papers: Investments in Random Environments
This paper studies a continuous-time market {under stochastic environment} where an agent, having specified an investment horizon and a target terminal mean return, seeks to minimize the variance of the return with multiple stocks and a…
We model stochastic choice as environment-dependent switching among a small library of deterministic decision rules. A Random Rule Model generates menu-level choice probabilities via named, interpretable rules weighted by observable menu…
In multi-period stochastic optimization problems, the future optimal decision is a random variable whose distribution depends on the parameters of the optimization problem. We analyze how the expected value of this random variable changes…
The valuation process that economic agents undergo for investments with uncertain payoff typically depends on their statistical views on possible future outcomes, their attitudes toward risk, and, of course, the payoff structure itself.…
The objective of this work is the investigation of complexity, asymmetry, stochasticity and non-linearity of the financial and economic systems by using the tools of statistical mechanics and information theory. More precisely, this thesis…
This paper studies the dynamic programming principle using the measurable selection method for stochastic control of continuous processes. The novelty of this work is to incorporate intermediate expectation constraints on the canonical…
We study a stochastic multiplicative process with reset events. It is shown that the model develops a stationary power-law probability distribution for the relevant variable, whose exponent depends on the model parameters. Two qualitatively…
A multiplicative stochastic process with the lower bound lognormally distributed is investigated. For the process, the model is constructed, and its distribution function (involving four parameters) and the related statistical properties…
Opportunities for stochastic arbitrage in an options market arise when it is possible to construct a portfolio of options which provides a positive option premium and which, when combined with a direct investment in the underlying asset,…
We explore a stochastic model that enables capturing external influences in two specific ways. The model allows for the expression of uncertainty in the parametrisation of the stochastic dynamics and incorporates patterns to account for…
The use of factor stochastic volatility models requires choosing the number of latent factors used to describe the dynamics of the financial returns process; however, empirical evidence suggests that the number and makeup of pertinent…
Stochastic processes offer a flexible mathematical formalism to model and reason about systems. Most analysis tools, however, start from the premises that models are fully specified, so that any parameters controlling the system's dynamics…
We develop a novel mathematical programming approximation framework to tackle the stochastic knapsack problem. In this problem, the decision maker considers items for which either weights or values, or both, are random. The aim is to select…
In this short paper, we study the simulation of a large system of stochastic processes subject to a common driving noise and fast mean-reverting stochastic volatilities. This model may be used to describe the firm values of a large pool of…
We analyze the properties of arguably the simplest bilinear stochastic multiplicative process, proposed as a model of financial returns and of other complex systems combining both nonlinearity and multiplicative noise. By construction, it…
We investigate the general problem of how to model the kinematics of stock prices without considering the dynamical causes of motion. We propose a stochastic process with long-range correlated absolute returns. We find that the model is…
We study a stochastic multiplicative system composed of finite asynchronous elements to describe the wealth evolution in financial markets. We find that the wealth fluctuations or returns of this system can be described by a walk with…
We introduce a statistical physics inspired supervised machine learning algorithm for classification and regression problems. The method is based on the invariances or stability of predicted results when known data is represented as…
In the simplest version of the model of group decision making in the stochastic environment, the participants are segregated into egoists and a group of collectivists. A "proposal of the environment" is a stochastically generated vector of…
This survey reviews portfolio choice in settings where investment opportunities are stochastic due to, e.g., stochastic volatility or return predictability. It is explained how to heuristically compute candidate optimal portfolios using…