Related papers: Robust Financial Bubbles
This paper expands the notion of robust profit opportunities in financial markets to incorporate distributional uncertainty using Wasserstein distance as the ambiguity measure. Financial markets with risky and risk-free assets are…
This article provides a self-contained overview of the theory of rational asset price bubbles. We cover topics from basic definitions, properties, and classical results to frontier research, with an emphasis on bubbles attached to real…
We consider a simple stochastic differential equation for modeling bubbles in social context. A prime example is bubbles in asset pricing, but similar mechanisms may control a range of social phenomena driven by psychological factors (for…
We seek to deepen understanding of the micro-foundations of institutionalization while contributing to a sociological theory of markets by investigating the puzzle of price bubbles in financial markets. We find that such markets, despite…
A rational bubble is a situation in which the asset price exceeds its fundamental value defined by the present discounted value of dividends in a rational equilibrium model. We discuss the recent development of the theory of rational…
Financial bubbles and crashes have repeatedly caused economic turmoil notably but not only during the 2008 financial crisis. However, both in the popular press as well as scientific publications, the meaning of bubble is sometimes…
We present a new, scalable alternative to the structured singular value, which we call $\nu$, provide a convex upper bound, study their properties and compare them to $\ell_1$ robust control. The analysis relies on a novel result on the…
We consider a banking network represented by a system of stochastic differential equations coupled by their drift. We assume a core-periphery structure, and that the banks in the core hold a bubbly asset. The banks in the periphery have not…
This paper develops a dynamic equilibrium model where agents exhibit a strong form of belief heterogeneity: they disagree about zero probability events. It is shown that, somewhat surprisingly, equilibrium exists in this setting, and that…
This paper is devoted to a study of robust fundamental theorems of asset pricing in discrete time and finite horizon settings. Uncertainty is modelled by a (possibly uncountable) family of price processes on the same probability space. Our…
We define a financial bubble as a period of unsustainable growth, when the price of an asset increases ever more quickly, in a series of accelerating phases of corrections and rebounds. More technically, during a bubble phase, the price…
In this study, we investigate asset price bubbles in a discrete-time, discrete-state market under model uncertainty and short sales prohibitions. Building on a new fundamental theorem of asset pricing and a superhedging duality in this…
We formulate conditions for the solvability of the problem of robust utility maximization from final wealth in continuous time financial markets, without assuming weak compactness of the densities of the uncertainty set, as customary in the…
Volatility is the canonical measure of financial risk, a role largely inherited from Modern Portfolio Theory. Yet, its universality rests on restrictive efficiency assumptions that render volatility, at best, an incomplete proxy for true…
Episodes of market crashes have fascinated economists for centuries. Although many academics, practitioners and policy makers have studied questions related to collapsing asset price bubbles, there is little consensus yet about their causes…
Considering a simple economy, we derive a new Hamilton-Jacobi equation which is satisfied by the value of a ''bubble'' asset. We then show, by providing a rigorous mathematical analysis of this equation, that a unique non-zero stable…
We study procurement design when the buyer is uncertain about both the value of the good and the seller's cost. The buyer has a conjectured model but does not fully trust it. She first identifies mechanisms that maximize her worst-case…
One the one hand, rough volatility has been shown to provide a consistent framework to capture the properties of stock price dynamics both under the historical measure and for pricing purposes. On the other hand, market price of volatility…
Economists often estimate economic models on data and use the point estimates as a stand-in for the truth when studying the model's implications for optimal decision-making. This practice ignores model ambiguity, exposes the decision…
In this note we consider a system of financial institutions and study systemic risk measures in the presence of a financial market and in a robust setting, namely, where no reference probability is assigned. We obtain a dual representation…