Related papers: Mean-Variance and Expected Utility: The Borch Para…
In this paper we extend Savage's theory of decision-making under uncertainty from a classical environment into a non-classical one. We formulate the corresponding axioms and provide representation theorems for qualitative measures and…
We consider the problem of exponential utility indifference valuation under the simplified framework where traded and nontraded assets are uncorrelated but where the claim to be priced possibly depends on both. Traded asset prices follow a…
We consider a reference security, understood to be an attractive investment, with the caveat that an investor is not willing to directly invest in the security, for presence of constraints, either investor specific or pertaining to the…
This paper proposes an expected multivariate utility analysis for ESG investors in which green stocks, brown stocks, and a market index are modeled in a one-factor, CAPM-type structure. This setting allows investors to accommodate their…
We study the properties of Expected Shortfall from the point of view of financial risk management. This measure --- which emerges as a natural remedy in some cases where Value at Risk (VaR) is not able to distinguish portfolios which bear…
Shafer's theory of belief and the Bayesian theory of probability are two alternative and mutually inconsistent approaches toward modelling uncertainty in artificial intelligence. To help reduce the conflict between these two approaches,…
We consider the optimal investment and marginal utility pricing problem of a risk averse agent and quantify their exposure to a small amount of model uncertainty. Specifically, we compute explicitly the first-order sensitivity of their…
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 provide an economic interpretation of the practice consisting in incorporating risk measures as constraints in a classic expected return maximization problem. For what we call the infimum of expectations class of risk measures, we show…
The entropic value-at-risk (EVaR) is a new coherent risk measure, which is an upper bound for both the value-at-risk (VaR) and conditional value-at-risk (CVaR). As important properties, the EVaR is strongly monotone over its domain and…
The median voter theorem has long been the default model of voter behavior and candidate choice. While contemporary work on the distribution of political opinion has emphasized polarization and an increasing gap between the "left" and the…
In this paper, both dynamic mean-variance portfolio selection problems and dynamic variance hedging problems are discussed under non-Markovian framework. Explicit closed-loop equilibrium strategies of these problems are respectively…
We consider the classical multi-asset Merton investment problem under drift uncertainty, i.e. the asset price dynamics are given by geometric Brownian motions with constant but unknown drift coefficients. The investor assumes a prior drift…
We analyze and quantify, in a financial market with parameter uncertainty and for a Constant Relative Risk Aversion investor, the utility effects of two different boundedly rational (i.e., sub-optimal) investment strategies (namely, myopic…
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…
The volatility characterizes the amplitude of price return fluctuations. It is a central magnitude in finance closely related to the risk of holding a certain asset. Despite its popularity on trading floors, the volatility is unobservable…
Expected Shortfall (ES) is the average return on a risky asset conditional on the return being below some quantile of its distribution, namely its Value-at-Risk (VaR). The Basel III Accord, which will be implemented in the years leading up…
We consider an incomplete market with a nontradable stochastic factor and a continuous time investment problem with an optimality criterion based on monotone mean-variance preferences. We formulate it as a stochastic differential game…
This paper discusses a novel explanation for asymmetric volatility based on the anchoring behavioral pattern. Anchoring as a heuristic bias causes investors focusing on recent price changes and price levels, which two lead to a belief in…
Risk aversion is a key element of utility maximizing hedge strategies; however, it has typically been assigned an arbitrary value in the literature. This paper instead applies a GARCH-in-Mean (GARCH-M) model to estimate a time-varying…