Related papers: Stochastic discount factors
We consider an individual or household endowed with an initial capital and an income, modeled as a deterministic process with a continuous drift rate. At first, we model the discounting rate as the price of a zero-coupon bond at zero under…
In a stochastic volatility framework, we find a general pricing equation for the class of payoffs depending on the terminal value of a market asset and its final quadratic variation. This allows a pricing tool for European-style claims…
In this paper, we consider a general distributed system with multiple agents who select and then implement actions in the system. The system has an operator with a centralized objective. The agents, on the other hand, are selfinterested and…
Although the valuation of life contingent assets has been thoroughly investigated under the framework of mathematical statistics, little financial economics research pays attention to the pricing of these assets in a non-arbitrage, complete…
Sequential auctions for identical items with unit-demand, private-value buyers are common and often occur periodically without end, as new bidders replace departing ones. We model bidder uncertainty by introducing a probability that a…
We propose a model for the credit markets in which the random default times of bonds are assumed to be given as functions of one or more independent "market factors". Market participants are assumed to have partial information about each of…
In many sequential decision-making problems we may want to manage risk by minimizing some measure of variability in rewards in addition to maximizing a standard criterion. Variance related risk measures are among the most common…
A general theory of stochastic decision forests is developed to bridge two concepts of information flow: decision trees and refined partitions on the one side, filtrations from probability theory on the other. Instead of the traditional…
An econometric or statistical model may undergo a marginal gain if we admit a new variable to the model, and a marginal loss if we remove an existing variable from the model. Assuming equality of opportunity among all candidate variables,…
Employing probabilistic techniques we compute best possible upper and lower bounds on the price of an option on one or two assets with continuous piecewise linear payoff function based on prices of simple call options of possibly distinct…
When analyzing the components influencing the stock prices, it is commonly believed that economic activities play an important role. More specifically, asset prices are more sensitive to the systematic economic news that impose a pervasive…
We study a multi-objective model on the allocation of reusable resources under model uncertainty. Heterogeneous customers arrive sequentially according to a latent stochastic process, request for certain amounts of resources, and occupy…
In this paper new analytical and numerical approaches to valuating path-dependent options of European type have been developed. The model of stochastic volatility as a basic model has been chosen. For European options we could improve the…
We model investor heterogeneity using different required returns on an investment and evaluate the impact on the valuation of an investment. By assuming no disagreement on the cash flows, we emphasize how risk preferences in particular, but…
A basic assumption of traditional reinforcement learning is that the value of a reward does not change once it is received by an agent. The present work forgoes this assumption and considers the situation where the value of a reward decays…
Accuracy of economic theories and efficiency of economic policy strictly depend on the choice of the economic variables and processes mostly liable for description of economic reality. That states the general problem of assessment of any…
A model among many may only be best under certain states of the world. Switching from a model to another can also be costly. Finding a procedure to dynamically choose a model in these circumstances requires to solve a complex estimation…
Good economic mechanisms depend on the preferences of participants in the mechanism. For example, the revenue-optimal auction for selling an item is parameterized by a reserve price, and the appropriate reserve price depends on how much the…
In this technical note, we establish an upper-bound on the threshold on the discount factor starting from which all discounted-optimal deterministic policies are gain-optimal, that we prove to be tight on an example. To address…
In reinforcement learning episodes, the rewards and punishments are often non-deterministic, and there are invariably stochastic elements governing the underlying situation. Such stochastic elements are often numerous and cannot be known in…