Related papers: Election predictions are arbitrage-free: response …
We propose a new non parametric technique to estimate the CALL function based on the superhedging principle. Our approach does not require absence of arbitrage and easily accommodates bid/ask spreads and other market imperfections. We prove…
It is shown that absence of arbitrage opportunity in financial markets is a particular case of existence of uncertainty in decision system. Absence of arbitrage opportunity is considered in the sense of the Arrow-Debreu model of financial…
We study a dynamic game where an expert sends probabilistic forecasts to a decision-maker. The decision-maker verifies these forecasts using a calibration test based on past data. How should the expert send forecasts to maximize her payoff…
In this work, we empirically examine human-AI decision-making in the presence of explanations based on predicted outcomes. This type of explanation provides a human decision-maker with expected consequences for each decision alternative at…
Donald Trump was lagging behind in nearly all opinion polls leading up to the 2016 US presidential election, but he surprisingly won the election. This raises the following important questions: 1) why most opinion polls were not accurate in…
We study the interpretability of conditional probability estimates for binary classification under the agnostic setting or scenario. Under the agnostic setting, conditional probability estimates do not necessarily reflect the true…
This short note provides a systematic construction of market models without unbounded profits but with arbitrage opportunities.
We study the Fundamental Theorem of Asset Pricing for a general financial market under Knightian Uncertainty. We adopt a functional analytic approach which require neither specific assumptions on the class of priors $\mathcal{P}$ nor on the…
Calibration is a classical notion from the forecasting literature which aims to address the question: how should predicted probabilities be interpreted? In a world where we only get to observe (discrete) outcomes, how should we evaluate a…
In a model independent discrete time financial market, we discuss the richness of the family of martingale measures in relation to different notions of Arbitrage, generated by a class $\mathcal{S}$ of significant sets, which we call…
Context: Software engineering has a problem in that when we empirically evaluate competing prediction systems we obtain conflicting results. Objective: To reduce the inconsistency amongst validation study results and provide a more formal…
Recently, a proposal has been advanced to detect unconstitutional partisan gerrymandering with a simple formula called the efficiency gap. The efficiency gap is now working its way towards a possible landmark case in the Supreme Court. This…
Market efficiency at least requires the absence of weak arbitrage opportunities, but this is not sufficient to establish a situation where the market is sensitive, i.e., where it "fully reflects" or "rapidly adjusts to" some information…
The weighted average is by far the most popular approach to combining multiple forecasts of some future outcome. This paper shows that both for probability or real-valued forecasts, a non-trivial weighted average of different forecasts is…
In this paper I empirically investigate prediction markets for binary options. Advocates of prediction markets have suggested that asset prices are consistent estimators of the "true" probability of a state of the world being realized. I…
This paper builds a model of interactive belief hierarchies to derive the conditions under which judging an arbitrage opportunity requires Bayesian market participants to exercise their higher-order beliefs. As a Bayesian, an agent must…
We investigate whether it is possible to formulate option pricing and hedging models without using probability. We present a model that is consistent with two notions of volatility: a historical volatility consistent with statistical…
How to hedge factor risks without knowing the identities of the factors? We first prove a general theoretical result: even if the exact set of factors cannot be identified, any risky asset can use some portfolio of similar peer assets to…
This paper formulates a model of utility for a continuous time framework that captures the decision-maker's concern with ambiguity about both volatility and drift. Corresponding extensions of some basic results in asset pricing theory are…
We initiate the study of the truthfulness of calibration measures in sequential prediction. A calibration measure is said to be truthful if the forecaster (approximately) minimizes the expected penalty by predicting the conditional…