Related papers: Learning and Portfolio Decisions for HARA Investor…
This paper presents an optimal allocation problem in a financial market with one risk-free and one risky asset, when the market is driven by a stochastic market price of risk. We solve the problem in continuous time, for an investor with a…
We propose a general family of piecewise hyperbolic absolute risk aversion (PHARA) utilities, including many classic and non-standard utilities as examples. A typical application is the composition of a HARA preference and a piecewise…
We develop a novel five-component decomposition of optimal dynamic portfolio choice, which reveals the simultaneous impacts from market incompleteness and wealth-dependent utilities. Under the HARA utility and a nonrandom interest rate, we…
This work studies the dynamic risk management of the risk-neutral value of the potential credit losses on a portfolio of derivatives. Sensitivities-based hedging of such liability is sub-optimal because of bid-ask costs, pricing models…
The fundamental principle in Modern Portfolio Theory (MPT) is based on the quantification of the portfolio's risk related to performance. Although MPT has made huge impacts on the investment world and prompted the success and prevalence of…
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…
Myopic optimization (MO) outperforms reinforcement learning (RL) in portfolio management: RL yields lower or negative returns, higher variance, larger costs, heavier CVaR, lower profitability, and greater model risk. We model…
Online portfolio selection research has so far focused mainly on minimizing regret defined in terms of wealth growth. Practical financial decision making, however, is deeply concerned with both wealth and risk. We consider online learning…
This paper presents a framework of imitating the principal investor's behavior for optimal pricing and hedging options. We construct a non-deterministic Markov decision process for modeling stock price change driven by the principal…
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…
In this paper, we explore the portfolio allocation problem involving an uncertain covariance matrix. We calculate the expected value of the Constant Absolute Risk Aversion (CARA) utility function, marginalized over a distribution of…
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…
We find economically and statistically significant gains when using machine learning for portfolio allocation between the market index and risk-free asset. Optimal portfolio rules for time-varying expected returns and volatility are…
Recognizing that asset markets generally exhibit shared informational characteristics, we develop a portfolio strategy based on transfer learning that leverages cross-market information to enhance the investment performance in the market of…
Most methods for decision-theoretic online learning are based on the Hedge algorithm, which takes a parameter called the learning rate. In most previous analyses the learning rate was carefully tuned to obtain optimal worst-case…
The aim of this work consists in the study of the optimal investment strategy for a behavioural investor, whose preference towards risk is described by both a probability distortion and an S-shaped utility function. Within a continuous-time…
This paper considers the optimal portfolio selection problem in a dynamic multi-period stochastic framework with regime switching. The risk preferences are of exponential (CARA) type with an absolute coefficient of risk aversion which…
In this paper, we combine modern portfolio theory and option pricing theory so that a trader who takes a position in a European option contract and the underlying assets can construct an optimal portfolio such that at the moment of the…
We derive a closed-form expression capturing the degree of Relative Risk Aversion (RRA) of investors for non-"fair" lotteries. We argue that our formula is superior to earlier methods that have been proposed, as it is a function of only…
This paper is concerned with an optimal investment problem under correlated noises in the financial market, and the expected utility functional is hyperbolic absolute risk aversion (HARA) with the exponent $\gamma\neq0$. The problem can be…