Related papers: Prospect Theory for Online Financial Trading

We consider models of financial markets in which all parties involved find incentives to participate. Strategies are evaluated directly by their virtual wealths. By tuning the price sensitivity and market impact, a phase diagram with…

Communicating forecast uncertainty effectively is a persistent challenge in predictive endeavours such as weather forecasting. This paper explores the application of possibility theory as a complementary approach to traditional probability…

This paper considers the security investment problem over a network in which the resource owners aim to allocate their constrained security resources to heterogeneous targets strategically. Investing in each target makes it less vulnerable,…

In real-world decision-making problems, for instance in the fields of finance, robotics or autonomous driving, keeping uncertainty under control is as important as maximizing expected returns. Risk aversion has been addressed in the…

We consider the problem of dynamic buying and selling of shares from a collection of $N$ stocks with random price fluctuations. To limit investment risk, we place an upper bound on the total number of shares kept at any time. Assuming that…

We consider a prospect theoretic version of the classical Q-learning algorithm for discounted reward Markov decision processes, wherein the controller perceives a distorted and noisy future reward, modeled by a nonlinearity that accentuates…

This paper introduces forward-looking measures of the network connectedness of fears in the financial system, arising due to the good and bad beliefs of market participants about uncertainty that spreads unequally across a network of banks.…

In this paper, we address one of the main puzzles in finance observed in the stock market by proponents of behavioral finance: the stock predictability puzzle. We offer a statistical model within the context of rational finance which can be…

Detection rules have traditionally been designed for rational agents that minimize the Bayes risk (average decision cost). With the advent of crowd-sensing systems, there is a need to redesign binary hypothesis testing rules for behavioral…

Challenge Theory (CT), a new approach to decision under risk departs significantly from expected utility, and is based on firmly psychological, rather than economic, assumptions. The paper demonstrates that a purely cognitive-psychological…

We consider a conditional factor model for a multivariate portfolio of United States equities in the context of analysing a statistical arbitrage trading strategy. A state space framework underlies the factor model whereby asset returns are…

We investigate activities that have different periods of duration. We define the profit intensity as a measure of this economic category. The profit intensity in a repeated trading has a unique property of attaining its maximum at a fixed…

Different models of capital exchange among economic agents have been proposed recently trying to explain the emergence of Pareto's wealth power law distribution. One important factor to be considered is the existence of risk aversion. In…

Sustainable financial markets play an important role in the functioning of human society. Still, the detection and prediction of risk in financial markets remain challenging and draw much attention from the scientific community. Here we…

We study optimal investment problems under the framework of cumulative prospect theory (CPT). A CPT investor makes investment decisions in a single-period financial market with transaction costs. The objective is to seek the optimal…

Three theories offer competing predictions about how people respond to growing diversity in their social environment. Contact theory suggests more exposure to out-groups reduces prejudice; conflict theory predicts a stronger in-group…

In this article, inspired by Shi, et al. we investigate the optimal portfolio selection with one risk-free asset and one risky asset in a multiple period setting under cumulative prospect theory (CPT). Compared with their study, our novelty…

Decision making in uncertain and risky environments is a prominent area of research. Standard economic theories fail to fully explain human behaviour, while a potentially promising alternative may lie in the direction of Reinforcement…

Human decision-making in real-life deviates significantly from the optimal decisions made by fully rational agents, primarily due to computational limitations or psychological biases. While existing studies in behavioral finance have…

We explore various extensions of Challet and Zhang's Minority Game in an attempt to gain insight into the dynamics underlying financial markets. First we consider a heterogeneous population where individual traders employ differing `time…