Related papers: Mean-Variance and Expected Utility: The Borch Para…
We consider a portfolio with call option and the corresponding underlying asset under the standard assumption that stock-market price represents a random variable with lognormal distribution. Minimizing the variance (hedging risk) of the…
A widely applied diversification paradigm is the naive diversification choice heuristic. It stipulates that an economic agent allocates equal decision weights to given choice alternatives independent of their individual characteristics.…
We use the Grossman \& Stiglitz (1980) framework to build a reference portfolio for uninformed investors and employ this portfolio to assess the performance of actively managed equity mutual funds. We propose an empirical methodology to…
The investor is interested in the expected return and he is also concerned about the risk and the uncertainty assumed by the investment. One of the most popular concepts used to measure the risk and the uncertainty is the variance and/or…
The classical Markowitz mean-variance model uses variance as a risk measure and calculates frontier portfolios in closed form by using standard optimization techniques. For general mean-risk models such closed form optimal portfolios are…
In this paper, we explore two fundamental theorems of differential calculus: Rolle's Theorem and the Mean Value Theorem (MVT). These theorems play a crucial role in the development of theoretical and practical results in mathematics,…
The expected utility hypothesis is one of the building blocks of classical economic theory and founded on Savage's Sure-Thing Principle. It has been put forward, e.g. by situations such as the Allais and Ellsberg paradoxes, that real-life…
We extend the classical mean-variance (MV) framework and propose a robust and sparse portfolio selection model incorporating an ellipsoidal uncertainty set to reduce the impact of estimation errors and fixed transaction costs to penalize…
This paper investigates the consumption and risk taking decision of an economic agent with partial irreversibility of consumption decision by formalizing the theory proposed by Duesenberry (1949). The optimal policies exhibit a type of the…
The 'expected utility hypothesis' is one of the foundations of classical approaches to economics and decision theory and Savage's 'Sure-Thing Principle' is a fundamental element of it. It has been put forward that real-life situations…
This paper explores the mean-variance portfolio selection problem in a multi-period financial market characterized by regime-switching dynamics and uncontrollable liabilities. To address the uncertainty in the decision-making process within…
This paper revisits the limitations of the Median Voter Theorem and introduces a novel framework to analyze the optimal economic ideological positions of political parties. By incorporating Nash equilibrium, we examine the mechanisms and…
Marginal expected shortfall is unquestionably one of the most popular systemic risk measures. Studying its extreme behaviour is particularly relevant for risk protection against severe global financial market downturns. In this context,…
In 1966, Arnold [1] showed that the Lagrangian flow of ideal incompressible fluids (described by Euler equations) coincide with the geodesic flow on the manifold of volume preserving diffeomorphisms of the fluid domain. Arnold's proof and…
In this paper we derive the exact solution of the multi-period portfolio choice problem for an exponential utility function under return predictability. It is assumed that the asset returns depend on predictable variables and that the joint…
We provided proof here that coefficient of variation (CV) is a direct measure of risk using an equation that has been derived here for the first time. We also presented a method to generate a stock CV based on return that strongly…
Electric utilities must make massive capital investments in the coming years to respond to explosive growth in demand, aging assets and rising threats from extreme weather. Utilities today already have rigorous frameworks for capital…
One approach to the analysis of stochastic fluctuations in market prices is to model characteristics of investor behaviour and the complex interactions between market participants, with the aim of extracting consequences in the aggregate.…
{\it Ellsberg thought experiments} and empirical confirmation of Ellsberg preferences pose serious challenges to {\it subjective expected utility theory} (SEUT). We have recently elaborated a quantum-theoretic framework for human decisions…
Quantum cognition in decision-making is a recent and rapidely growing field. In this paper we develop an expected utility theory in a context of non-classical (quantum) uncertainty. We replace the classical state space with a Hilbert space…