Related papers: Deterministic Income with Deterministic and Stocha…
This paper employs an intra-personal game-theoretic framework to investigate how decreasing impatience influences irreversible investment behaviors in a continuous-time setting. We consider a capacity expansion problem under weighted…
Classical deterministic optimal control problems assume full information about the controlled process. The theory of control for general partially-observable processes is powerful, but the methods are computationally expensive and typically…
This paper studies the stochastic modeling of market drawdown events and the fair valuation of insurance contracts based on drawdowns. We model the asset drawdown process as the current relative distance from the historical maximum of the…
This paper develops a new model of business cycles. The model is economical in that it is solved with an aggregate demand-aggregate supply diagram, and the effects of shocks and policies are obtained by comparative statics. The model builds…
We design three continuous--time models in finite horizon of a commodity price, whose dynamics can be affected by the actions of a representative risk--neutral producer and a representative risk--neutral trader. Depending on the model, the…
In this paper, we study a stochastic optimal control problem with stochastic volatility. We prove the sufficient and necessary maximum principle for the proposed problem. Then we apply the results to solve an investment, consumption and…
We study the problem of efficiently computing the derivative of the fixed-point of a parametric nondifferentiable contraction map. This problem has wide applications in machine learning, including hyperparameter optimization, meta-learning…
Bernstein's theorem (also called Hausdorff--Bernstein--Widder theorem) enables the integral representation of a completely monotonic function. We introduce a finite completely monotonic function, which is a completely monotonic function…
This paper studies Markov Decision Processes (MDPs) with atomless initial state distributions and atomless transition probabilities. Such MDPs are called atomless. The initial state distribution is considered to be fixed. We show that for…
We consider the problem of optimal consumption from labor income and investment in a general incomplete semimartingale market. The economic agent cannot borrow against future income, so the total wealth is required to be positive at (all or…
We determine the quality of randomized social choice mechanisms in a setting in which the agents have metric preferences: every agent has a cost for each alternative, and these costs form a metric. We assume that these costs are unknown to…
In usual stochastic volatility models, the process driving the volatility of the asset price evolves according to an autonomous one-dimensional stochastic differential equation. We assume that the coefficients of this equation are smooth.…
Heinsohn and Steiger's "Eigentum, Zins und Geld" (1996) proposes the property premium as the foundational determinant of interest, replacing time preference. This paper examines whether the replacement succeeds. It does not. The two…
Most decision theories, including expected utility theory, rank dependent utility theory and cumulative prospect theory, assume that investors are only interested in the distribution of returns and not in the states of the economy in which…
Motivated by the industry practice of pairs trading, we study the optimal timing strategies for trading a mean-reverting price spread. An optimal double stopping problem is formulated to analyze the timing to start and subsequently…
The utility-based pricing of defaultable bonds in the case of stochastic intensity models of default risk is discussed. The Hamilton-Jacobi- Bellman (HJB) equations for the value functions is derived. A finite difference method is used to…
A widely used heuristic for solving stochastic optimization problems is to use a deterministic rolling horizon procedure, which has been modified to handle uncertainty (e.g. buffer stocks, schedule slack). This approach has been criticized…
We model the joint distribution of choice probabilities and decision times in binary choice tasks as the solution to a problem of optimal sequential sampling, where the agent is uncertain of the utility of each action and pays a constant…
A dynamical model is introduced for the formation of a bullish or bearish trends driving an asset price in a given market. Initially, each agent decides to buy or sell according to its personal opinion, which results from the combination of…
This article studies the problem of evaluating the information that a Principal lacks when establishing an incentive contract with an Agent whose effort is not observable. The Principal ("she") pays a continuous rent to the Agent ("he"),…