Related papers: Mean-Variance and Expected Utility: The Borch Para…
We revisit the optimal dividend problem of de Finetti by adding a variance term to the usual criterion of maximizing the expected discounted dividends paid until ruin, in a singular control framework. Investors do not like variability in…
Socially responsible investors build investment portfolios intending to incite social and environmental advancement alongside a financial return. Although Mean-Variance (MV) models successfully generate the highest possible return based on…
Assuming that agents' preferences satisfy first-order stochastic dominance, we show how the Expected Utility paradigm can rationalize all optimal investment choices: the optimal investment strategy in any behavioral law-invariant…
Portfolio optimization methods have evolved significantly since Markowitz introduced the mean-variance framework in 1952. While the theoretical appeal of this approach is undeniable, its practical implementation poses important challenges,…
Gilboa and Schmeidler's (1989) uncertainty aversion plays a central role in decision theory and economics, yet many inconsistent behaviors have been observed in experiments. Motivated by this, we study an axiom postulating a minimal degree…
The present paper introduces a theoretical framework through which the degree of risk aversion with respect to uncertain prices can be measured through the context of the indirect utility function (IUF) using a lab experiment. First, the…
This memoir presents a systematic study of the utility maximization problem of an investor in a constrained and unbounded financial market. Building upon the work of Hu et al. (2005) [Ann. Appl. Probab., 15, 1691--1712] in a bounded…
This paper studies the multi-period mean-variance portfolio allocation problem with transaction costs. Many methods have been proposed these last years to challenge the famous uni-period Markowitz strategy.But these methods cannot integrate…
Model uncertainty is a type of inevitable financial risk. Mistakes on the choice of pricing model may cause great financial losses. In this paper we investigate financial markets with mean-volatility uncertainty. Models for stock markets…
Motivated by empirical evidence for rough volatility models, this paper investigates continuous-time mean-variance (MV) portfolio selection under the Volterra Heston model. Due to the non-Markovian and non-semimartingale nature of the…
The most commonly accepted model for investors' preferences is expected utility theory. More recently, other theories have emerged and pose new challenges to mathematics. The present paper treats preferences of cumulative prospect theory…
We obtain variants of the classical von Neumann-Morgenstern expected utility theorem, with and without the completeness axiom, in which the derived Bernoulli utility functions are Lipschitz. The prize space in these results is an arbitrary…
We develop a preference elicitation method for a Von Neumann-Morgenstern (VNM)-type decision-maker from pairwise comparison data in the presence of response errors. We apply the maximum likelihood estimation (MLE) method to jointly elicit…
Geometry constitutes a core set of intuitions present in all humans, regardless of their language or schooling [1]. Could brain's built in machinery for processing geometric information take part in uncertainty representation? For decades…
A classical portfolio theory deals with finding the optimal proportion in which an agent invests a wealth in a risk-free asset and a probabilistic risky asset. Formulating and solving the problem depend on how the risk is represented and…
Economic and financial theories and practice essentially deal with uncertain future. Humans encounter uncertainty in different kinds of activity, from sensory-motor control to dynamics in financial markets, what has been subject of…
More than seventy years ago Harry Markowitz formulated portfolio construction as an optimization problem that trades off expected return and risk, defined as the standard deviation of the portfolio returns. Since then the method has been…
This paper explores the practical approach to portfolio selection methods for investments. The study delves into portfolio theory, discussing concepts such as expected return, variance, asset correlation, and opportunity sets. It also…
We present a theory of expected utility with state-dependent linear utility functions for monetary returns, that incorporates the possibility of loss-aversion. Our results relate to first order stochastic dominance, mean-preserving spread,…
Taking the European Central Bank unconventional policies as a reference, we suggest a class of Multiplicative Error Models (MEM) taylored to analyze the impact such policies have on stock market volatility. The new set of models, called MEM…