Related papers: Risk Aversion in the Small and in the Large under …
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 propose and axiomatize preferences on a product state space in light of uncertainty regarding the dependency of different payoff-relevant factors. Dependence structures allow to decompose probabilities and allow to pin down behavior…
Our goal is to analyze the system of Hamilton-Jacobi-Bellman equations arising in derivative securities pricing models. The European style of an option price is constructed as a difference of the certainty equivalents to the value functions…
Ambiguity and ambiguity aversion have been widely studied in decision theory and economics both at a theoretical and an experimental level. After Ellsberg's seminal studies challenging subjective expected utility theory (SEUT), several…
Optimization of distortion riskmetrics with distributional uncertainty has wide applications in finance and operations research. Distortion riskmetrics include many commonly applied risk measures and deviation measures, which are not…
We establish dual representations for systemic risk measures based on acceptance sets in a general setting. We deal with systemic risk measures of both "first allocate, then aggregate" and "first aggregate, then allocate" type. In both…
Agents' learning from feedback shapes economic outcomes, and many economic decision-makers today employ learning algorithms to make consequential choices. This note shows that a widely used learning algorithm, $\varepsilon$-Greedy, exhibits…
As AIs rapidly advance and become more agentic, the risk they pose is governed not only by their capabilities but increasingly by their propensities, including goals and values. Tracking the emergence of goals and values has proven a…
In this short paper we introduce a new class of performance measures based on certainty equivalents defined via scaled utility functions. We analyse their properties, show that the corresponding portfolio optimization problem is well-posed…
We study a discrete-time consumption-based capital asset pricing model under expectations-based reference-dependent preferences. More precisely, we consider an endowment economy populated by a representative agent who derives utility from…
We consider a generalization of the classical risk model when the premium intensity depends on the current surplus of an insurance company. All surplus is invested in the risky asset, the price of which follows a geometric Brownian motion.…
Random shifting typically appears in credibility models whereas random scaling is often encountered in stochastic models for claim sizes reflecting the time-value property of money. In this article we discuss some aspects of random shifting…
This paper studies preference aggregation under uncertainty in the multi-profile framework and characterizes a new class of aggregation rules that address classical concerns about Harsanyi's (1955) utilitarian rules. Our aggregation rules,…
This paper introduces the risk-sensitive control as inference (RCaI) that extends CaI by using R\'{e}nyi divergence variational inference. RCaI is shown to be equivalent to log-probability regularized risk-sensitive control, which is an…
This paper studies robust forward investment and consumption preferences and optimal strategies for a risk-averse and ambiguity-averse agent in an incomplete financial market with drift and volatility uncertainties. We focus on non-zero…
Storage is expected to be a critical source of firming in low-carbon grids. A common concern raised from ex-post assessments is that storage resources can fail to respond to strong price signals during times of scarcity. While commonly…
How should well-being be prioritised in society, and what trade-offs are people willing to make between fairness and personal well-being? We investigate these questions using a stated preference experiment with a nationally representative…
This paper develops a method to derive optimal portfolios and risk premia explicitly in a general diffusion model for an investor with power utility and a long horizon. The market has several risky assets and is potentially incomplete.…
We consider the problem of optimal risk sharing in a pool of cooperative agents. We analyze the asymptotic behavior of the certainty equivalents and risk premia associated with the Pareto optimal risk sharing contract as the pool expands.…
Flexibility options, such as demand response, energy storage and interconnection, have the potential to reduce variation in electricity prices between different future scenarios, therefore reducing investment risk. Moreover, investment in…