Related papers: A note on heterogeneous beliefs with CRRA utilitie…
We study a space of coherent risk measures M_phi obtained as certain expansions of coherent elementary basis measures. In this space, the concept of ``Risk Aversion Function'' phi naturally arises as the spectral representation of each risk…
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…
This essay discusses the advantages of a probabilistic agent-based approach to questions in theoretical economics, from the nature of economic agents, to the nature of the equilibria supported by their interactions. One idea we propose is…
This paper investigates the regret associated with the Distributionally Robust Control (DRC) strategies used to address multistage optimization problems where the involved probability distributions are not known exactly, but rather are…
I conduct Rabin's (2000) calibration exercise in the subjective expected utility realm. I show that the rejection of some risky bet by a risk-averse agent only implies the rejection of more extreme and less desirable bets and nothing more.
We examine an economy in which interactions are more productive if agents can trust others to refrain from cheating. Some agents are scoundrels, who cheat at every opportunity, while others cheat only if the cost of cheating, a decreasing…
We show that risk-aware behaviors in demand response originate from superquadratic state-dependent cost functions and price uncertainty with skewed distributions. We obtain such results through developing a novel theoretical demand response…
We derive a closed form portfolio optimization rule for an investor who is diffident about mean return and volatility estimates, and has a CRRA utility. The novelty is that confidence is here represented using ellipsoidal uncertainty sets…
In this paper, we consider the problem of maximizing the expected discounted utility of dividend payments for an insurance company that controls risk exposure by purchasing proportional reinsurance. We assume the preference of the insurer…
In this work an opinion formation model with heterogeneous agents is proposed. Each agent is supposed to have different power of persuasion, and besides its own level of zealotry, that is, an individual willingness to being convinced by…
Agent-based models help explain stock price dynamics as emergent phenomena driven by interacting investors. In this modeling tradition, investor behavior has typically been captured by two distinct mechanisms -- learning and heterogeneous…
We consider a robust consumption-investment problem under CRRA and CARA utilities. The time-varying confidence sets are specified by $\Theta$, a correspondence from $[0,T]$ to the space of L\'{e}vy triplets, and describe priori information…
The expected utility operators introduced in a previous paper, offer a framework for a general risk aversion theory, in which risk is modelled by a fuzzy number $A$. In this paper we formulate a coinsurance problem in the possibilistic…
Risk aversion and insurance are two prominent and interconnected concepts in economics and finance. To explore their fundamental connection, we introduce risk-insurance parity, which associates various classes of insurance contracts with…
In an arbitrage-free simple market, we demonstrate that for a class of state-dependent exponential utilities, there exists a unique prediction of the random risk aversion that ensures the consistency of optimal strategies across any time…
We propose a continuous-time nonlinear model of opinion dynamics with utility-maximizing agents connected via a social influence network. A distinguishing feature of the proposed model is the inclusion of an opinion-dependent…
Stock correlations is crucial to asset pricing, investor decision-making, and financial risk regulations. However, microscopic explanation based on agent-based modeling is still lacking. We here propose a model derived from minority game…
We discuss the asymptotic behaviour of risk-based indifference prices of European contingent claims in discrete-time financial markets under volatility uncertainty as the number of intermediate trading periods tends to infinity. The…
This paper extends the classical consumption and portfolio rules model in continuous time (Merton 1969, 1971) to the framework of decision-makers with time-inconsistent preferences. The model is solved for different utility functions for…
This paper introduces a novel approach to financial risk analysis that does not rely on traditional price and market data, instead using market news to model assets as distributions over a metric space of risk factors. By representing asset…