Related papers: Robust Financial Bubbles
The field of portfolio selection is an active research topic, which combines elements and methodologies from various fields, such as optimization, decision analysis, risk management, data science, forecasting, etc. The modeling and…
We prove the Fundamental Theorem of Asset Pricing for a discrete time financial market where trading is subject to proportional transaction cost and the asset price dynamic is modeled by a family of probability measures, possibly…
In this paper we study a rational inattention model in environments where the decision maker faces uncertainty about the true prior distribution over states. The decision maker seeks to select a stochastic choice rule over a finite set of…
We extend the model of rational bubbles of Blanchard and of Blanchard and Watson to arbitrary dimensions d: a number d of market time series are made linearly interdependent via d times d stochastic coupling coefficients. We first show that…
Proving the existence of speculative financial bubbles even a posteriori has proven exceedingly difficult so anticipating a speculative bubble ex ante would at first seem an impossible task. Still as illustrated by the recent turmoil in…
A risk analyst assesses potential financial losses based on multiple sources of information. Often, the assessment does not only depend on the specification of the loss random variable but also various economic scenarios. Motivated by this…
A step to consilience, starting with a deconstruction of the causality of uncertainty that is embedded in the fundamentals of growth and inequality, following a construction of aggregation laws that disclose the invariance principle across…
Robust optimization provides a principled framework for decision-making under uncertainty, with broad applications in finance, engineering, and operations research. In portfolio optimization, uncertainty in expected returns and covariances…
In this paper, an optimization problem with uncertain constraint coefficients is considered. Possibility theory is used to model the uncertainty. Namely, a joint possibility distribution in constraint coefficient realizations, called…
We investigate newsvendor games whose payoff function is uncertain due to ambiguity in demand distributions. We discuss the concept of stability under uncertainty and introduce solution concepts for robust cooperative games which could be…
This paper provides the mathematical foundation for polynomial diffusions. They play an important role in a growing range of applications in finance, including financial market models for interest rates, credit risk, stochastic volatility,…
A well known result states that stability criterion for matchings in two-sided markets doesn't ensure uniqueness. This opens the door for a moral question with regard to the optimal stable matching from a social point of view. Here, a new…
An explicit formula is derived for the value of weak information in a discrete time model that works for a wide range of utility functions including the logarithmic and power utility. We assume a complete market with a finite number of…
We develop an averaging approach to robust risk measurement under payoff uncertainty. Instead of taking a worst-case value over an uncertainty neighborhood, we weight nearby payoffs more heavily under a chosen metric and average the…
We study the formation of derivative prices in equilibrium between risk-neutral agents with heterogeneous beliefs about the dynamics of the underlying. Under the condition that the derivative cannot be shorted, we prove the existence of a…
In the present paper, a robust approach to a special class of convex feasibility problems is considered. By techniques of convex and variational analysis, conditions for the existence of robust feasible solutions and related error bounds…
Keeping a basic tenet of economic theory, rational expectations, we model the nonlinear positive feedback between agents in the stock market as an interplay between nonlinearity and multiplicative noise. The derived hyperbolic stochastic…
Dependability is an umbrella concept that subsumes many key properties about a system, including reliability, maintainability, safety, availability, confidentiality, and integrity. Various dependability modeling techniques have been…
In real-life temporal scenarios, uncertainty and preferences are often essential and coexisting aspects. We present a formalism where quantitative temporal constraints with both preferences and uncertainty can be defined. We show how three…
In this review article we explore several recent advances in the quantitative modeling of financial markets. We begin with the Efficient Markets Hypothesis and describe how this controversial idea has stimulated a number of new directions…