Related papers: A note on heterogeneous beliefs with CRRA utilitie…
How should a risk-averse newsvendor order optimally under distributional ambiguity? Attempts to extend Scarf's celebrated distribution-free ordering rule using risk measures have led to conflicting prescriptions: CVaR-based models…
We study strategic interaction in data-driven games where players face uncertainty about payoff distributions inferred from finite samples. To model calibrated attitudes toward such uncertainty, we formulate distributionally robust games…
Risk-limiting audits (RLAs) are expected to strengthen the public confidence in the correctness of an election outcome. We hypothesize that this is not always the case, in part because for large margins between the winner and the runner-up,…
New versions of the set-valued average value at risk for multivariate risks are introduced by generalizing the well-known certainty equivalent representation to the set-valued case. The first "regulator" version is independent from any…
In this paper, we consider the asset-liability management under the mean-variance criterion. The financial market consists of a risk-free bond and a stock whose price process is modeled by a geometric Brownian motion. The liability of the…
Expected Shortfall (ES, also known as CVaR) is the most important coherent risk measure in finance, insurance, risk management, and engineering. Recently, Wang and Zitikis (2021) put forward four economic axioms for portfolio risk…
We present a unified framework for computing CVA sensitivities, hedging the CVA, and assessing CVA risk, using probabilistic machine learning meant as refined regression tools on simulated data, validatable by low-cost companion Monte Carlo…
This work studies the dynamic risk management of the risk-neutral value of the potential credit losses on a portfolio of derivatives. Sensitivities-based hedging of such liability is sub-optimal because of bid-ask costs, pricing models…
We show that under plausible levels of background risk, no theory of choice under risk -- such as expected utility theory, prospect theory, or rank dependent utility -- can simultaneously satisfy the following three economic postulates: (i)…
Flexibility options, such as demand response, energy storage and interconnection, have the potential to reduce variation in electricity prices between different future scenarios, therefore reducing investment risk. Moreover, investment in…
We develop a novel five-component decomposition of optimal dynamic portfolio choice, which reveals the simultaneous impacts from market incompleteness and wealth-dependent utilities. Under the HARA utility and a nonrandom interest rate, we…
With an increasing number of prospective geological CO$_2$ storage projects and potential pressure communication between different projects, risk sharing under uncertain geological conditions are relevant to many project operators. In this…
Risk and utility functionals are fundamental building blocks in economics and finance. In this paper we investigate under which conditions a risk or utility functional is sensitive to the accumulation of losses in the sense that any…
The scale and terms of aggregate borrowing in an economy depend on the manner in which wealth is distributed across potential creditors with heterogeneous beliefs about the future. This distribution evolves over time as uncertainty is…
This article focuses on the work of O. Chanel and G. Chichilnisky (2013) on the flaws of expected utility theory while assessing the value of life. Expected utility is a fundamental tool in decision theory. However, it does not fit with the…
The equity risk premium puzzle is that the return on equities has far exceeded the average return on short-term risk-free debt and cannot be explained by conventional representative-agent consumption based equilibrium models. We review a…
Traditional credibility analysis of risks in insurance is based on the random effects model, where the heterogeneity across the policyholders is assumed to be time-invariant. One popular extension is the dynamic random effects (or…
This paper diverges from previous literature by considering the utility maximization problem in the context of investors having the freedom to actively acquire additional information to mitigate estimation risk. We derive closed-form value…
We introduce a utility-driven bounded-confidence model of opinion dynamics in which opinions associated with higher utility exert stronger social influence. In the regime where all agents belong to a single opinion cluster, we derive a…
We revisit the recently introduced concept of return risk measures (RRMs) and extend it by incorporating risk management via multiple so-called eligible assets. The resulting new class of risk measures, termed multi-asset return risk…