Related papers: Intertemporal Substitutability, Risk Aversion and …
Consider an insurance company exposed to a stochastic economic environment that contains two kinds of risk. The first kind is the insurance risk caused by traditional insurance claims, and the second kind is the financial risk resulting…
This study provides a solution of the equity premium puzzle. Questioning the validity of the Arrow-Pratt measure of relative risk aversion for detecting the risk behavior of investors under all conditions, a new tool, that is, the…
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…
The frequent occurrence of natural disasters has posed significant challenges to society, necessitating the urgent development of effective risk management strategies. From the early informal community-based risk sharing mechanisms to…
We develop a theoretical trading conditioning model subject to price volatility and return information in terms of market psychological behavior, based on analytical transaction volume-price probability wave distributions in which we use…
We study a single risky financial asset model subject to price impact and transaction cost over an finite time horizon. An investor needs to execute a long position in the asset affecting the price of the asset and possibly incurring in…
An agent choosing between various actions tends to take the one with the lowest cost. But this choice is arguably too rigid (not adaptive) to be useful in complex situations, e.g., where exploration-exploitation trade-off is relevant in…
"Noise-induced volatility" refers to a phenomenon of increased level of fluctuations in the collective dynamics of bistable units in the presence of a rapidly varying external signal, and intermediate noise levels. The archetypical…
We present a general approach to the pricing of products in finance and insurance in the multi-period setting. It is a combination of the utility indifference pricing and optimal intertemporal risk allocation. We give a characterization of…
The relationship between price volatilty and a market extremum is examined using a fundamental economics model of supply and demand. By examining randomness through a microeconomic setting, we obtain the implications of randomness in the…
In this paper we study the price dynamics in a simple model of financial markets with heterogeneous agents. We concentrate on how increases in the total number of active traders influences fluctuations of asset prices. We find that a…
Cross-sectional signatures of market panic were recently discussed on daily time scales in [1], extended here to a study of cross-sectional properties of stocks on intra-day time scales. We confirm specific intra-day patterns of dispersion…
In this study we examine the evolution of price, volume, and the bid-ask spread after extreme 15 minute intraday price changes on the NYSE and the NASDAQ. We find that due to strong behavioral trading there is an overreaction. Furthermore…
The waiting time needed for a stock market index to undergo a given percentage change in its value is found to have an up-down asymmetry, which, surprisingly, is not observed for the individual stocks composing that index. To explain this,…
I study robust comparative statics for risk-averse subjective expected utility (SEU) maximizers. Starting with a finite menu of actions totally ordered by sensitivity to risk, I identify the transformations of her menu that lead a…
The equity risk premium puzzle is that the return on equities has far exceeded the average return on short-term risk-free debt and cannot be explained by conventional representative-agent consumption based equilibrium models. We review a…
A new class of risk measures called cash sub-additive risk measures is introduced to assess the risk of future financial, nonfinancial and insurance positions. The debated cash additive axiom is relaxed into the cash sub additive axiom to…
Taking the European Central Bank unconventional policies as a reference, we suggest a class of Multiplicative Error Models (MEM) taylored to analyze the impact such policies have on stock market volatility. The new set of models, called MEM…
Portfolio diversification is a cornerstone of modern finance, while risk aversion is central to decision theory; both concepts are long-standing and foundational. We investigate their connections by studying how different forms of…
Safety analyses in terms of adverse events (AEs) are an important aspect of benefit-risk assessments of therapies. Compared to efficacy analyses AE analyses are often rather simplistic. The probability of an AE of a specific type is…