Related papers: Getting rich quick with the Axiom of Choice
For an exponential utility maximizing investment strategy in a Black-Scholes Setting, fixed upper and lower constraints are introduced on the terminal wealth. This is equivalent to combining the optimal strategy with options. The resulting…
We prove that a random choice rule satisfies Luce's Choice Axiom if and only if its support is a choice correspondence that satisfies the Weak Axiom of Revealed Preference, thus it consists of alternatives that are optimal according to some…
We study a continuous-time financial market with continuous price processes under model uncertainty, modeled via a family $\mathcal{P}$ of possible physical measures. A robust notion ${\rm NA}_{1}(\mathcal{P})$ of no-arbitrage of the first…
Opportunities for stochastic arbitrage in an options market arise when it is possible to construct a portfolio of options which provides a positive option premium and which, when combined with a direct investment in the underlying asset,…
We investigate the relation between the fair price for European-style vanilla options and the distribution of short-term returns on the underlying asset ignoring transaction and other costs. We compute the risk-neutral probability density…
We study the market selection hypothesis in complete financial markets, populated by heterogeneous agents. We allow for a rich structure of heterogeneity: individuals may differ in their beliefs concerning the economy, information and…
One of the shortcomings of the Black and Scholes model on option pricing is the assumption that trading of the underlying asset does not affect the price of that asset. This assumption can be fulfilled only in perfectly liquid markets.…
It is known from previous work of the authors that non-negative arbitrage free price processes in finance can be described in terms of filtered likelihood processes of statistical experiments and vice versa. The present paper summarizes and…
The equity risk premium puzzle is that the return on equities has far exceeded the average return on short-term risk-free debt and cannot be explained by conventional representative-agent consumption based equilibrium models. We review a…
Most work in mechanism design assumes that buyers are risk neutral; some considers risk aversion arising due to a non-linear utility for money. Yet behavioral studies have established that real agents exhibit risk attitudes which cannot be…
To study the assumption that the utility maximization hypothesis implicitly adds to consumer theory, we consider a mathematical representation of pre-marginal revolution consumer theory based on subjective exchange ratios. We introduce two…
We consider a portfolio with call option and the corresponding underlying asset under the standard assumption that stock-market price represents a random variable with lognormal distribution. Minimizing the variance (hedging risk) of the…
This work extends a previous work in regime detection, which allowed trading positions to be profitably adjusted when a new regime was detected, to ex ante prediction of regimes, leading to substantial performance improvements over the…
The scale and terms of aggregate borrowing in an economy depend on the manner in which wealth is distributed across potential creditors with heterogeneous beliefs about the future. This distribution evolves over time as uncertainty is…
As operators acting on the undetermined final settlement of a derivative security, expectation is linear but price is non-linear. When the market of underlying securities is incomplete, non-linearity emerges from the bid-offer around the…
We consider the problem of selling perishable items to a stream of buyers in order to maximize social welfare. A seller starts with a set of identical items, and each arriving buyer wants any one item, and has a valuation drawn i.i.d. from…
In fair division of indivisible goods, using sequences of sincere choices (or picking sequences) is a natural way to allocate the objects. The idea is as follows: at each stage, a designated agent picks one object among those that remain.…
We study an infinite horizon optimal stopping problem which arises naturally in the optimal timing of a firm/project sale or in the valuation of natural resources: the functional to be maximised is a sum of a discounted running reward and a…
In this article, we look at a hat-guessing game, in which each player must guess the color of their own hat while only seeing the hats of the other players. We focus on the case of two hat colors and a countably infinite number of players.…
In this paper we examine problems motivated by on-line financial problems and stochastic games. In particular, we consider a sequence of entirely arbitrary distinct values arriving in random order, and must devise strategies for selecting…