Related papers: Generalized asset pricing: Expected Downside Risk-…
We consider two market designs for a network of prosumers, trading energy: (i) a centralized design which acts as a benchmark, and (ii) a peer-to-peer market design. High renewable energy penetration requires that the energy market design…
This paper studies a continuous-time portfolio selection problem under a general distribution of random risk aversion (RRA). We provide a complete characterization of all deterministic equilibrium strategies in closed form. Our results show…
This paper studies an asset pricing model in a partially observable market with a large number of heterogeneous agents using the mean field game theory. In this model, we assume that investors can only observe stock prices and must infer…
We develop a novel multivariate semi-parametric framework for joint portfolio Value-at-Risk (VaR) and Expected Shortfall (ES) forecasting. Unlike existing univariate semi-parametric approaches, the proposed framework explicitly models the…
Empirical risk minimization (ERM) is typically designed to perform well on the average loss, which can result in estimators that are sensitive to outliers, generalize poorly, or treat subgroups unfairly. While many methods aim to address…
We investigate the effects of the social interactions of a finite set of agents on an equilibrium pricing mechanism. A derivative written on non-tradable underlyings is introduced to the market and priced in an equilibrium framework by…
We present the Shortfall Deviation Risk (SDR), a risk measure that represents the expected loss that occurs with certain probability penalized by the dispersion of results that are worse than such an expectation. SDR combines Expected…
Optimizing risk-averse objectives in discounted MDPs is challenging because most models do not admit direct dynamic programming equations and require complex history-dependent policies. In this paper, we show that the risk-averse {\em total…
We investigate entropy as a financial risk measure. Entropy explains the equity premium of securities and portfolios in a simpler way and, at the same time, with higher explanatory power than the beta parameter of the capital asset pricing…
Equity risk premium is a central component of every risk and return model in finance and a key input to estimate costs of equity and capital in both corporate finance and valuation. An article by Damodaran examines three broad approaches…
This paper introduces a novel approach to financial risk analysis that does not rely on traditional price and market data, instead using market news to model assets as distributions over a metric space of risk factors. By representing asset…
In order to manage peak-grid events, utilities run incentive-based demand response (DR) programs in which they offer an incentive to assets who promise to curtail power consumption, and impose penalties if they fail to do so. We develop a…
We study how trading costs are reflected in equilibrium returns. To this end, we develop a tractable continuous-time risk-sharing model, where heterogeneous mean-variance investors trade subject to a quadratic transaction cost. The…
As operators acting on the undetermined final settlement of a derivative security, expectation is linear but price is non-linear. When the market of underlying securities is incomplete, non-linearity emerges from the bid-offer around the…
The standard asset pricing models (the CCAPM and the Epstein-Zin non-expected utility model) counterintuitively predict that equilibrium asset prices can rise if the representative agent's risk aversion increases. If the income effect,…
We introduce a semiparametric approach for forecasting Value-at-Risk (VaR) and Expected Shortfall (ES) by modeling the conditional scale of financial returns, defined as the difference between two specified quantiles, via restricted…
We discuss the coherence properties of Expected Shortfall (ES) as a financial risk measure. This statistic arises in a natural way from the estimation of the "average of the 100p % worst losses" in a sample of returns to a portfolio. Here p…
Game theory has traditionally had a relatively limited view of risk based on how a player's expected reward is impacted by the uncertainty of the actions of other players. Recently, a new game-theoretic approach provides a more holistic…
This paper establishes the first analytical relationship between predictive model performance and loss ratio in insurance pricing. We derive a closed-form formula connecting the Pearson correlation between predicted and actual losses to…
Recently equal risk pricing, a framework for fair derivative pricing, was extended to consider dynamic risk measures. However, all current implementations either employ a static risk measure that violates time consistency, or are based on…