Related papers: Long Horizons, High Risk Aversion, and Endogeneous…
All the financial practitioners are working in incomplete markets full of unhedgeable risk-factors. Making the situation worse, they are only equipped with the imperfect information on the relevant processes. In addition to the market risk,…
We study the optimal investment-reinsurance problem in the context of equity-linked insurance products. Such products often have a capital guarantee, which can motivate insurers to purchase reinsurance. Since a reinsurance contract implies…
We study hedging and pricing of unattainable contingent claims in a non-Markovian regime-switching financial model. Our financial market consists of a bank account and a risky asset whose dynamics are driven by a Brownian motion and a…
We study the role and drivers of persistence in the extensive margin of bilateral trade. Motivated by a stylized heterogeneous firms model of international trade with market entry costs, we consider dynamic three-way fixed effects binary…
This paper investigates portfolio selection within a continuous-time financial market with regime-switching and beliefs-dependent utilities. The market coefficients and the investor's utility function both depend on the market regime, which…
We consider a stochastic model of investment on an asset of a stock market for a prudent investor. She decides to buy permanent goods with a fraction $\a$ of the maximum amount of money owned in her life in order that her economic level…
We maximize the expected utility from terminal wealth for an HARA investor when the market price of risk is an unobservable random variable. We compute the optimal portfolio explicitly and explore the effects of learning by comparing it…
In this paper, we study the robust optimal investment and risk control problem for an insurer who owns the insider information about the financial market and the insurance market under model uncertainty. Both financial risky asset process…
This paper studies the robust portfolio selection problem under a state-dependent confidence set. The investor invests in a financial market with a risk-free asset and a risky asset. The ambiguity-averse investor faces uncertainty over the…
Effective risk control must make a tradeoff between the microprudential risk of exogenous shocks to individual institutions and the macroprudential risks caused by their systemic interactions. We investigate a simple dynamical model for…
This paper studies the mean-variance optimal portfolio choice of an investor pre-committed to a deterministic investment policy in continuous time in a market with mean-reversion in the risk-free rate and the equity risk-premium. In the…
We propose a consumption-investment decision model where past consumption peak $h$ plays a crucial role. There are two important consumption levels: the lowest constrained level and a reference level, at which the risk aversion in terms of…
We study the problem of active portfolio management where an investor aims to outperform a benchmark strategy's risk profile while not deviating too far from it. Specifically, an investor considers alternative strategies whose terminal…
We consider a stochastic game between a trader and a central bank in a target zone market with a lower currency peg. This currency peg is maintained by the central bank through the generation of permanent price impact, thereby aggregating…
Value adjustment of uncollateralized trades is determined within a risk-neutral pricing framework. When hedging such trades, investors cannot freely trade protection on their own name, thus facing an incomplete market. This fact is…
It is shown that the axioms for coherent risk measures imply that whenever there is an asset in a portfolio that dominates the others in a given sample (which happens with finite probability even for large samples), then this portfolio…
An investor trades a safe and several risky assets with linear price impact to maximize expected utility from terminal wealth. In the limit for small impact costs, we explicitly determine the optimal policy and welfare, in a general…
This paper studies the problem of optimal investment with CRRA (constant, relative risk aversion) preferences, subject to dynamic risk constraints on trading strategies. The market model considered is continuous in time and incomplete. the…
I characterize optimal government policy in a sticky-price economy with different types of consumers and endogenous financial constraints in the banking and entrepreneurial sectors. The competitive equilibrium allocation is constrained…
This paper investigates risk measures derived from the expected maximum deficit in a continuous-time framework and develops optimal reserve allocation strategies across multiple lines of business. We formalize the expected maximum deficit…