Related papers: Rationalizing Investors Choice
This study presents a rigorous mathematical approach to the optimization of round and betting policies in Blackjack, using Markov Decision Processes (MDP) and Expected Utility Theory. The analysis considers a direct confrontation between a…
One of the most celebrated results in mechanism design is Myerson's characterization of the revenue optimal auction for selling a single item. However, this result relies heavily on the assumption that buyers are indifferent to risk. In…
This paper investigates optimal trading strategies in a financial market with multidimensional stock returns where the drift is an unobservable multivariate Ornstein-Uhlenbeck process. Information about the drift is obtained by observing…
In this paper, we consider a multi-attribute decision making problem where the decision maker's (DM's) objective is to maximize the expected utility of outcomes but the true utility function which captures the DM's risk preference is…
We consider a diffusion approximation to an insurance risk model where an external driver models a stochastic environment. The insurer can buy reinsurance. Moreover, investment in a financial market is possible. The financial market is also…
We consider a Bayesian financial market with one bond and one stock where the aim is to maximize the expected power utility from terminal wealth. The solution of this problem is known, however there are some conjectures in the literature…
We study how to optimally design selection mechanisms, accounting for agents' investment incentives. A principal wishes to allocate a resource of homogeneous quality to a heterogeneous population of agents. The principal commits to a…
We consider an insurance company modelling its surplus process by a Brownian motion with drift. Our target is to maximise the expected exponential utility of discounted dividend payments, given that the dividend rates are bounded by some…
Ergodicity economics is a new branch of economic theory that notes the conceptual difference between time averages and expectation values, which coincide only for ergodic observables. It postulates that individual agents maximise the time…
Modern portfolio theory(MPT) addresses the problem of determining the optimum allocation of investment resources among a set of candidate assets. In the original mean-variance approach of Markowitz, volatility is taken as a proxy for risk,…
This study investigates an optimal consumption--investment problem in which the unobserved stock trend is modulated by a hidden Markov chain that represents different economic regimes. In the classical approach, the hidden state is…
In this paper, we revisit the relationship between investors' utility functions and portfolio allocation rules. We derive portfolio allocation rules for asymmetric Laplace distributed $ALD(\mu,\sigma,\kappa)$ returns and compare them with…
In this article, we consider the optimal investment-consumption problem for an agent with preferences governed by Epstein--Zin stochastic differential utility (EZ-SDU) who invests in a constant-parameter Black-Scholes-Merton market over the…
We consider an illiquid financial market with different regimes modeled by a continuous-time finite-state Markov chain. The investor can trade a stock only at the discrete arrival times of a Cox process with intensity depending on the…
This paper studies a mean-risk portfolio choice problem for log-returns in a continuous-time, complete market. This is a growth-optimal problem with risk control. The risk of log-returns is measured by weighted Value-at-Risk (WVaR), which…
In this paper we study the problem of maximizing expected utility from the terminal wealth with proportional transaction costs and random endowment. In the context of the existence of consistent price systems, we consider the duality…
The Random Utility Model (RUM) is the leading model to represent the aggregate choices of a heterogeneous population of preference maximizers. We show that if (and only if) preferences are sufficiently uncorrelated, RUM choices can also be…
We study a robust utility maximization problem in a general discrete-time frictionless market under quasi-sure no-arbitrage. The investor is assumed to have a random and concave utility function defined on the whole real-line. She also…
This paper investigates optimal investment and pension policies in a Pay-As-You-Go (PAYG) system supplemented by a buffer fund used as an intergenerational risk-sharing mechanism. The social planner's preference criterion is represented by…
We consider an agent who invests in a stock and a money market account with the goal of maximizing the utility of his investment at the final time T in the presence of a proportional transaction cost. The utility function considered is…