Related papers: Optimizing S-shaped utility and implications for r…
Uncertainty is prevalent in engineering design, data-driven problems, and decision making broadly. Due to inherent risk-averseness and ambiguity about assumptions, it is common to address uncertainty by formulating and solving conservative…
We consider an optimal control problem arising in the context of economic theory of growth, on the lines of the works by Skiba (1978) and Askenazy - Le Van (1999). The economic framework of the model is intertemporal infinite horizon…
We examine Kreps' (2019) conjecture that optimal expected utility in the classic Black--Scholes--Merton (BSM) economy is the limit of optimal expected utility for a sequence of discrete-time economies that "approach" the BSM economy in a…
We consider the combination of value-at-risk (VaR) and expected shortfall (ES) forecasts when a large pool of candidate forecasts is available. Given the limited literature in this area, we implement a variety of new combining methods. In…
This paper enhances the pricing of derivatives as well as optimal control problems to a level comprising risk. We employ nested risk measures to quantify risk, investigate the limiting behavior of nested risk measures within the classical…
This paper studies a loss-averse version of the multiplicative habit formation preference and the corresponding optimal investment and consumption strategies over an infinite horizon. The agent's consumption preference is depicted by a…
In this paper, we extend Kreps' conjecture that optimal expected utility in the classic Black-Scholes-Merton (BSM) economy is the limit of optimal expected utility for a sequence of discrete-time economies in initially enlarged filtrations…
Risk measures for multivariate financial positions are studied in a utility-based framework. Under a certain incomplete preference relation, shortfall and divergence risk measures are defined as the optimal values of specific set…
We study the expected utility maximization problem of a large investor who is allowed to make transactions on tradable assets in an incomplete financial market with endogenous permanent market impacts. The asset prices are assumed to follow…
The paper discusses capital allocation using the Euler formula and focuses on the risk measures Value-at-Risk (VaR) and Expected shortfall (ES). Some new results connected to this capital allocation is known. Two examples illustrate that…
In an incomplete market, including liquidly-traded European options in an investment portfolio could potentially improve the expected terminal utility for a risk-averse investor. However, unlike the Sharpe ratio, which provides a concise…
We consider an optimal investment-consumption problem for a utility-maximizing investor who has access to assets with different liquidity and whose consumption rate as well as terminal wealth are subject to lower-bound constraints. Assuming…
A drawdown constraint forces the current wealth to remain above a given function of its maximum to date. We consider the portfolio optimisation problem of maximising the long-term growth rate of the expected utility of wealth subject to a…
We consider the problem of tabular infinite horizon concave utility reinforcement learning (CURL) with convex constraints. For this, we propose a model-based learning algorithm that also achieves zero constraint violations. Assuming that…
This paper presents analytical solutions to the problem of how to calculate sensible VaR (Value-at-Risk) and ES (Expected Shortfall) contributions in the CreditRisk+ methodology. Via the ES contributions, ES itself can be exactly computed…
We address the problem that classical risk measures may not detect the tail risk adequately. This can occur for instance due to averaging when calculating the Expected Shortfall. The current literature proposes the so-called adjusted…
We study the optimal portfolio allocation problem from a Bayesian perspective using value at risk (VaR) and conditional value at risk (CVaR) as risk measures. By applying the posterior predictive distribution for the future portfolio…
In a market with stochastic investment opportunities, we study an optimal consumption investment problem for an agent with recursive utility of Epstein-Zin type. Focusing on the empirically relevant specification where both risk aversion…
Under Solvency II, the Value-at-Risk (VaR) is applied, although there is broad consensus that the Expected Shortfall (ES) constitutes a more appropriate risk measure. Moving towards ES would necessitate specifying the corresponding ES…
We consider a portfolio optimisation problem for a utility-maximising investor who faces convex constraints on his portfolio allocation in Heston's stochastic volatility model. We apply the duality methods developed in previous work to…