Related papers: Utility Indifference Pricing: A Time Consistent Ap…
We study the single-period portfolio selection problem under Constant Relative Risk-Aversion (CRRA) utility through the information-theoretic lens. Assuming only that the market payoff vector has finite support, we show that the…
This work takes up the challenges of utility maximization problem when the market is indivisible and the transaction costs are included. First there is a so-called solvency region given by the minimum margin requirement in the problem…
The classical Merton investment problem predicts deterministic, state-dependent portfolio rules; however, laboratory and field evidence suggests that individuals often prefer randomized decisions leading to stochastic and noisy choices.…
The aim of this short note is to present a solution to the discrete time exponential utility maximization problem in a case where the underlying asset has a multivariate normal distribution. In addition to the usual setting considered in…
The paper [12] examines a concept of equilibrium policies instead of optimal controls in stochastic optimization to analyze a mean-variance portfolio selection problem. We follow the same approach in order to investigate the Merton…
We consider a popular model of microeconomics with countably many assets: the Arbitrage Pricing Model. We study the problem of optimal investment under an expected utility criterion and look for conditions ensuring the existence of optimal…
When we implement a portfolio selection methodology under a mean-risk formulation, it is essential to correctly model investors' risk aversion which may be time-dependent, or even state-dependent during the investment procedure. In this…
Utility based methods provide a very general theoretically consistent approach to pricing and hedging of securities in incomplete financial markets. Solving problems in the utility based framework typically involves dynamic programming,…
The effectiveness of utility-maximization techniques for portfolio management relies on our ability to estimate correctly the parameters of the dynamics of the underlying financial assets. In the setting of complete or incomplete financial…
We consider a discrete-time dividend payout problem with risk sensitive shareholders. It is assumed that they are equipped with a risk aversion coefficient and construct their discounted payoff with the help of the exponential premium…
Possibilistic risk theory starts from the hypothesis that risk is modelled by fuzzy numbers. In particular, in a possibilistic portfolio choice problem, the return of a risky asset will be a fuzzy number. The expected utility operators have…
We revisit optimal execution of an active portfolio in the presence of slippage (aka linear, proportional, or absolute-value) costs. Market efficiency implies a close balance between active alphas and trading costs, so even small changes to…
In Electricity markets, illiquidity, transaction costs and market price characteristics prevent managers to replicate exactly contracts. A residual risk is always present and the hedging strategy depends on a risk criterion chosen. We…
This paper characterizes differentiable and subgame Markov perfect equilibria in a continuous time intertemporal decision problem with non-constant discounting. Capturing the idea of non commitment by letting the commitment period being…
This work focuses on the indifference pricing of American call option underlying a non-traded stock, which may be partially hedgeable by another traded stock. Under the exponential forward measure, the indifference price is formulated as a…
We study a dynamic asset pricing problem in which a representative agent is ambiguous about the aggregate endowment growth rate and trades a risky stock, human capital, and a risk-free asset to maximize her preference value of consumption…
This work presents an asset pricing model that under rational expectation equilibrium perspective shows how, depending on risk aversion and noise volatility, a risky-asset has one equilibrium price that differs in term of efficiency: an…
The increase of renewables in the grid and the volatility of the load create uncertainties in the day-ahead prices of electricity markets. Adaptive robust optimization (ARO) and stochastic optimization have been used to make commitment and…
In a fixed time horizon, appropriately executing a large amount of a particular asset -- meaning a considerable portion of the volume traded within this frame -- is challenging. Especially for illiquid or even highly liquid but also highly…
The main objective of this paper is to develop a martingale-type solution to optimal consumption--investment choice problems ([Merton, 1969] and [Merton, 1971]) under time-varying incomplete preferences driven by externalities such as…