Related papers: Minimizing the Probability of Ruin when Consumptio…
In this paper, we study a risk process modeled by a Brownian motion with drift (the diffusion approximation model). The insurance entity can purchase reinsurance to lower its risk and receive cash injections at discrete times to avoid ruin.…
This paper considers an insurance company that faces two key constraints: a ratcheting dividend constraint and an irreversible reinsurance constraint. The company allocates part of its reserve to pay dividends to its shareholders while…
In our model, private actors with interbank cash flows similar to, but nore general than (Carmona, Fouque, Sun, 2013) borrow from the outside economy at a certain interest rate, controlled by the central bank, and invest in risky assets.…
A speculative agent with Prospect Theory preference chooses the optimal time to purchase and then to sell an indivisible risky asset to maximize the expected utility of the round-trip profit net of transaction costs. The optimization…
This article proposes a method for measuring the latent risks involved in the recovery process of non performing loans in financial institutions and business firms that deal with collection and recovery processes. To that end, we apply the…
This paper analyzes the hypothesis that returns play a risk-compensating role in the market for corporate revolving lines of credit. Specifically, we test whether borrower risk and the expected return on these debt instruments are…
I study the limit of a large random economy, where a set of consumers invests in financial instruments engineered by banks, in order to optimize their future consumption. This exercise shows that, even in the ideal case of perfect…
We consider a game-theoretic model where individuals compete over a shared failure-prone system or resource. We investigate the effectiveness of a taxation mechanism in controlling the utilization of the resource at the Nash equilibrium…
We study arbitrage opportunities, market viability and utility maximization in market models with an insider. Assuming that an economic agent possesses from the beginning an additional information in the form of a random variable G, which…
In environments with increasing uncertainty, such as smart grid applications based on renewable energy, planning can benefit from incorporating forecasts about the uncertainty and from systematically evaluating the utility of the forecast…
Mechanisms with money are commonly designed under the assumption that agents are quasi-linear, meaning they have linear disutility for spending money. We study the implications when agents with non-linear (specifically, convex) disutility…
We study an optimal consumption and investment problem in a possibly incomplete market with general, not necessarily convex, stochastic constraints. We give explicit solutions for investors with exponential, logarithmic and power utility.…
The emergent behavior of a distributed system is conditioned by the information available to the local decision-makers. Therefore, one may expect that providing decision-makers with more information will improve system performance; in this…
An agent-based model for firms' dynamics is developed. The model consists of firm agents with identical characteristic parameters and a bank agent. Dynamics of those agents is described by their balance sheets. Each firm tries to maximize…
In a market with stochastic investment opportunities, we study an optimal consumption investment problem for an agent with recursive utility of Epstein-Zin type. Focusing on the empirically relevant specification where both risk aversion…
A principal hires an agent to acquire soft information about an unknown state. Even though neither how the agent learns nor what the agent discovers are contractible, we show the principal is unconstrained as to what information the agent…
We investigate activities that have different periods of duration. We define the profit intensity as a measure of this economic category. The profit intensity in a repeated trading has a unique property of attaining its maximum at a fixed…
This paper demonstrates how reinforcement learning can explain two puzzling empirical patterns in household consumption behavior during economic downturns. I develop a model where agents use Q-learning with neural network approximation to…
Inspired by recent ideas on how the analysis of complex financial risks can benefit from analogies with independent research areas, we propose an unorthodox framework for mapping microfinance credit risk---a major obstacle to the…
We prove that the consumption functions in optimal savings problems are asymptotically linear if the marginal utility is regularly varying. We also analytically characterize the asymptotic marginal propensities to consume (MPCs) out of…