Related papers: Risk Premia: Asymmetric Tail Risks and Excess Retu…
We develop a pricing rule for life insurance under stochastic mortality in an incomplete market by assuming that the insurance company requires compensation for its risk in the form of a pre-specified instantaneous Sharpe ratio. Our…
Using the Crypto Fear & Greed Index and Bitcoin daily data, we document that sentiment extremity predicts excess uncertainty beyond realized volatility. Extreme fear and extreme greed regimes exhibit significantly higher spreads than…
The article's aim is to provide a solution to the equity premium puzzle with a derived model. The derived model which depends on Consumption Capital Asset Pricing Model gives a solution to the puzzle with the values of coefficient of…
By capturing outliers, volatility clustering, and tail dependence in the asset return distribution, we build a sophisticated model to predict the downside risk of the global financial market. We further develop a dynamic regime switching…
Smart beta, also known as strategic beta or factor investing, is the idea of selecting an investment portfolio in a simple rule-based manner that systematically captures market inefficiencies, thereby enhancing risk-adjusted returns above…
Consider an investor trading dynamically to maximize expected utility from terminal wealth. Our aim is to study the dependence between her risk aversion and the distribution of the optimal terminal payoff. Economic intuition suggests that…
Equity premium, the surplus returns of stocks over bonds, has been an enduring puzzle. While numerous prior works approach the problem assuming the utility of money is invariant across contexts, our approach implies that in efficient…
We design a system for risk-analyzing and pricing portfolios of non-performing consumer credit loans. The rapid development of credit lending business for consumers heightens the need for trading portfolios formed by overdue loans as a…
Growth-optimal portfolios are guaranteed to accumulate higher wealth than any other investment strategy in the long run. However, they tend to be risky in the short term. For serially uncorrelated markets, similar portfolios with more…
Tail risk protection is in the focus of the financial industry and requires solid mathematical and statistical tools, especially when a trading strategy is derived. Recent hype driven by machine learning (ML) mechanisms has raised the…
Fr{\o}seth (2026; arXiv:2603.05264) shows that a proportional wealth tax on market values is neutral with respect to portfolio choice, Sharpe ratios, and equilibrium prices under CRRA preferences and geometric Brownian motion. This paper…
We demonstrate both analytically and numerically that the existing methods for measuring tail dependence in copulas may sometimes underestimate the extent of extreme co-movements of dependent risks and, therefore, may not always comply with…
We propose a random walk model of asset returns where the parameters depend on market stress. Stress is measured by, e.g., the value of an implied volatility index. We show that model parameters including standard deviations and…
We provide an axiomatic approach to general premium principles in a probability-free setting that allows for Knightian uncertainty. Every premium principle is the sum of a risk measure, as a generalization of the expected value, and a…
Volatility, as a primary indicator of financial risk, forms the foundation of classical frameworks such as Markowitz's Portfolio Theory and the Efficient Market Hypothesis (EMH). However, its conventional use rests on assumptions-most…
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,…
We study the risk premium impact in the Perturbative Black Scholes model. The Perturbative Black Scholes model, developed by Scotti, is a subjective volatility model based on the classical Black Scholes one, where the volatility used by the…
The aims of this study are twofold. First, we consider an optimal risk allocation problem with non-convex preferences. By establishing an infimal representation for distortion risk measures, we give some necessary and sufficient conditions…
The role of portfolio construction in the implementation of equity market neutral factors is often underestimated. Taking the classical momentum strategy as an example, we show that one can significantly improve the main strategy's features…
This paper studies a Kyle-Back model with a risk-averse insider possessing exponential utility and a dynamic stochastic signal about the asset's terminal fundamental value. While the existing literature considers either risk-neutral…