Related papers: Portfolio Optimization under Habit Formation

Snapshots of "best" (or "worst") experience are known to dominate human memory and may thus also have a significant effect on future behaviour. We consider here a model of repeated decision-making where, at every time step, an agent takes…

We study the problem of active portfolio management where an investor aims to outperform a benchmark strategy's risk profile while not deviating too far from it. Specifically, an investor considers alternative strategies whose terminal…

We consider an investor who wants to select her/his optimal consumption, investment and insurance policies. Motivated by new insurance products, we allow not only the financial marke but also the insurable loss to depend on the regime of…

We consider an arbitrage-free, discrete time and frictionless market. We prove that an investor maximising the expected utility of her terminal wealth can always find an optimal investment strategy provided that her dissatisfaction of…

An empirical analysis, suggested by optimal Merton dynamics, reveals some unexpected features of asset volumes. These features are connected to traders' belief and risk aversion. This paper proposes a trading strategy model in the optimal…

We consider the economic problem of optimal consumption and investment with power utility. We study the optimal strategy as the relative risk aversion tends to infinity or to one. The convergence of the optimal consumption is obtained for…

We pursue an inverse approach to utility theory and consumption & investment problems. Instead of specifying an agent's utility function and deriving her actions, we assume we observe her actions (i.e. her consumption and investment…

The downside risk of a portfolio of (equity)assets is generally substantially higher than the downside risk of its components. In particular in times of crises when assets tend to have high correlation, the understanding of this difference…

This paper studies Merton's problem in an extended formulation by incorporating the benchmark tracking on the wealth process. We consider a tracking formulation where the fund manager aims to maximize the trade-off between the expected…

We study how the complexity of evolutionary dynamics in the classic MacArthur consumer-resource model depends on resource uptake and utilization rates. The traditional assumption in such models is that the utilization rate of the consumer…

Rough stochastic volatility models have attracted a lot of attentions recently, in particular for the linear option pricing problem. In this paper, starting with power utilities, we propose to use a martingale distortion representation of…

The role of portfolio construction in the implementation of equity market neutral factors is often underestimated. Taking the classical momentum strategy as an example, we show that one can significantly improve the main strategy's features…

We study a robust utility maximization problem in a general discrete-time frictionless market under quasi-sure no-arbitrage. The investor is assumed to have a random and concave utility function defined on the whole real-line. She also…

We consider a multi-stock continuous time incomplete market model with random coefficients. We study the investment problem in the class of strategies which do not use direct observations of the appreciation rates of the stocks, but rather…

Understanding consumption dynamics and its impact on the whole economy and welfare within the present economic crisis is not an easy task. Indeed the level of consumer demand for different goods varies with the prices, consumer incomes and…

Ergodicity economics is a new branch of economic theory that notes the conceptual difference between time averages and expectation values, which coincide only for ergodic observables. It postulates that individual agents maximise the time…

Assortment optimization is a fundamental challenge in modern retail and recommendation systems, where the goal is to select a subset of products that maximizes expected revenue under complex customer choice behaviors. While recent advances…

We present a continuous-time portfolio selection framework that reflects goal-based investment principles and mental accounting behavior. In this framework, an investor with multiple investment goals constructs separate portfolios, each…

We show that the mutual fund theorems of Merton (1971) extend to the problem of optimal investment to minimize the probability of lifetime ruin. We obtain two such theorems by considering a financial market both with and without a riskless…

We present a formal model for studying fashion trends, in terms of three parameters of fashionable items: (1) their innate utility; (2) individual boredom associated with repeated usage of an item; and (3) social influences associated with…