Related papers: A note on heterogeneous beliefs with CRRA utilitie…
Using high frequency data, we have studied empirically the change of volatility, also called volatility derivative, for various time horizons. In particular, the correlation between the volatility derivative and the volatility realized in…
We introduce an equilibrium asset pricing model, which we build on the relationship between a novel risk measure, the Expected Downside Risk (EDR) and the expected return. On the one hand, our proposed risk measure uses a nonparametric…
This paper studies manipulation of belief aggregation rules in the setting where the society first collects individual's probabilistic opinions and then solves a public portfolio choice problem with common utility based on the aggregate…
An investor with constant absolute risk aversion trades a risky asset with general It\^o-dynamics, in the presence of small proportional transaction costs. In this setting, we formally derive a leading-order optimal trading policy and the…
In this work we study the individual strategies carried out by agents undergoing transactions in wealth exchange models. We analyze the role of risk propensity in the behavior of the agents and find a critical risk, such that agents with…
In the general framework of a semimartingale financial model and a utility function $U$ defined on the positive real line, we compute the first-order expansion of marginal utility-based prices with respect to a ``small'' number of random…
Spectral risk measures (SRMs) are risk measures that take account of user riskaversion, but to date there has been little guidance on the choice of utility function underlying them. This paper addresses this issue by examining alternative…
We study the formation of derivative prices in equilibrium between risk-neutral agents with heterogeneous beliefs about the dynamics of the underlying. Under the condition that the derivative cannot be shorted, we prove the existence of a…
Prior work on safe Reinforcement Learning (RL) has studied risk-aversion to randomness in dynamics (aleatory) and to model uncertainty (epistemic) in isolation. We propose and analyze a new framework to jointly model the risk associated…
Correlated equilibria enable a coordinator to influence the self-interested agents by recommending actions that no player has an incentive to deviate from. However, the effectiveness of this mechanism relies on accurate knowledge of the…
We construct the term structure of the (forward-looking, US market) equity risk premium from SPX option chains. The method is "model-light". Risk-neutral probability densities are estimated by fitting $N$-component Gaussian mixture models…
This paper explores the utility of agent-based simulations in realistically modelling market structures and sheds light on the nuances of optimal dealer strategies. It underscores the contrast between conclusions drawn from probabilistic…
This paper studies the trading volumes and wealth distribution of a novel agent-based model of an artificial financial market. In this model, heterogeneous agents, behaving according to the Von Neumann and Morgenstern utility theory, may…
The dynamic hedging theory only makes sense in the setup of one given model, whereas the practice of dynamic hedging is just the opposite, with models fleeing after the data through daily recalibration. This is quite of a quantitative…
We introduce a new paradigm for risk sharing that generalizes earlier models based on discrete agents and extends them to allow for sharing risk within a continuum of agents. Agents are represented by points of a measure space and have…
Equity premium, the surplus returns of stocks over bonds, has been an enduring puzzle. While numerous prior works approach the problem assuming the utility of money is invariant across contexts, our approach implies that in efficient…
Inspired by the recent literature on aggregation theory, we aim at relating the long range correlation of the stocks return volatility to the heterogeneity of the investors' expectations about the level of the future volatility. Based on a…
I introduce novel preference formulations which capture aversion to ambiguity about unknown and potentially time-varying volatility. I compare these preferences with Gilboa and Schmeidler's maxmin expected utility as well as variational…
This paper studies the behavior of a strategic aggregator offering regulation capacity on behalf of a group of distributed energy resources (DERs, e.g. plug-in electric vehicles) in a power market. Our objective is to maximize the…
Real-world applications require RL algorithms to act safely. During learning process, it is likely that the agent executes sub-optimal actions that may lead to unsafe/poor states of the system. Exploration is particularly brittle in…