Related papers: Risk Aversion in the Small and in the Large under …
This study investigates the influence of risk tolerance on the expected utility in the long run. We estimate the extent to which the expected utility of optimal portfolios is affected by small changes in the risk tolerance. For this…
This paper formulates an utility indifference pricing model for investors trading in a discrete time financial market under non-dominated model uncertainty. The investors preferences are described by strictly increasing concave random…
In random expected utility (Gul and Pesendorfer, 2006), the distribution of preferences is uniquely recoverable from random choice. This paper shows through two examples that such uniqueness fails in general if risk preferences are random…
We extend well-known comparative results under expected utility to models of non-expected utility by providing novel conditions on local utility functions. We illustrate how our results parallel, and are distinct from, existing results for…
This paper assumes each individual in society has a random discount factor and assesses an intertemporal project using rank-dependent expected utility theory. We consider both the ex ante and the ex post approaches. For the former, we show…
Risk aversion is a key element of utility maximizing hedge strategies; however, it has typically been assigned an arbitrary value in the literature. This paper instead applies a GARCH-in-Mean (GARCH-M) model to estimate a time-varying…
We study the sensitivity of the expected utility maximization problem in a continuous semi-martingale market with respect to small changes in the market price of risk. Assuming that the preferences of a rational economic agent are modeled…
We characterize the family of utility functions satisfying linear fractional relative risk aversion (LFRRA) in terms of the Gauss hypergeometric functions. We apply this family, which nests various utility functions used in different…
A family of models of individual discrete choice are constructed by means of statistical averaging of choices made by a subject in a reinforcement learning process, where the subject has short, k-term memory span. The choice probabilities…
I propose a functional on the space of spectral risk measures that quantifies their ``degree of risk aversion''. This quantification formalizes the idea that some risk measures are ``more risk-averse'' than others. I construct the…
Different models of capital exchange among economic agents have been proposed recently trying to explain the emergence of Pareto's wealth power law distribution. One important factor to be considered is the existence of risk aversion. In…
We study the two-times differentiability of the value functions of the primal and dual optimization problems that appear in the setting of expected utility maximization in incomplete markets. We also study the differentiability of the…
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 extend the duality between exponential integrals and relative entropy to a variational formula for exponential integrals involving the Renyi divergence. This formula characterizes the dependence of risk-sensitive functionals and related…
The maximum entropy principle can be used to assign utility values when only partial information is available about the decision maker's preferences. In order to obtain such utility values it is necessary to establish an analogy between…
We consider portfolio optimization under a preference model in a single-period, complete market. This preference model includes Yaari's dual theory of choice and quantile maximization as special cases. We characterize when the optimal…
We axiomatize the Choquet rank-dependent utility model within a Savage framework with an exogenous source of pure risk. This model is a decision model under ambiguity, serving as a conceptual generalization of the Choquet expected utility…
Different models to study the wealth distribution in an artificial society have considered a transactional dynamics as the driving force. Those models include a risk aversion factor, but also a finite probability of favoring the poorer…
Classical reinforcement learning (RL) techniques are generally concerned with the design of decision-making policies driven by the maximisation of the expected outcome. Nevertheless, this approach does not take into consideration the…
Motivated by recent axiomatic developments, we study the risk- and ambiguity-averse investment problem where trading takes place over a fixed finite horizon and terminal payoffs are evaluated according to a criterion defined in terms of a…