Related papers: Election predictions are arbitrage-free: response …
We develop a robust framework for pricing and hedging of derivative securities in discrete-time financial markets. We consider markets with both dynamically and statically traded assets and make minimal measurability assumptions. We obtain…
We consider the common setting where one observes probability estimates for a large number of events, such as default risks for numerous bonds. Unfortunately, even with unbiased estimates, selecting events corresponding to the most extreme…
I prove that it is irrational for agents with even slightly private preferences to condition their strategy on private information that is payoff-irrelevant to them, contrary to powerful techniques for analyzing communication and repeated…
This article considers the pricing and hedging of a call option when liquidity matters, that is, either for a large nominal or for an illiquid underlying asset. In practice, as opposed to the classical assumptions of a price-taking agent in…
Several elections run in the last years have been characterized by attempts to manipulate the result of the election through the diffusion of fake or malicious news over social networks. This problem has been recognized as a critical issue…
Over a century ago, Oliver Wendell Holmes invited scholars to look at the law through the lens of probability theory: "The prophecies of what the courts will do in fact, and nothing more pretentious, are what I mean by the law." Yet few…
Accurate, reliable sampling from fully-connected graphs with arbitrary correlations is a difficult problem. Such sampling requires knowledge of the probabilities of observing every possible state of a graph. As graph size grows, the number…
We develop a systematic approach to quantum probability as a theory of rational betting in quantum gambles. In these games of chance the agent is betting in advance on the outcomes of several (finitely many) incompatible measurements. One…
A common assumption in financial engineering is that the market price for any derivative coincides with an objectively defined risk-neutral price - a plausible assumption only if traders collectively possess objective knowledge about the…
We derive the arbitrage gains or, equivalently, Loss Versus Rebalancing (LVR) for arbitrage between \textit{two imperfectly liquid} markets, extending prior work that assumes the existence of an infinitely liquid reference market. Our…
We reconsider the microeconomic foundations of financial economics. Motivated by the importance of Knightian Uncertainty in markets, we present a model that does not carry any probabilistic structure ex ante, yet is based on a common order.…
In this paper we ask whether, given a stock market and an illiquid derivative, there exists arbitrage-free prices at which an utility-maximizing agent would always want to buy the derivative, irrespectively of his own initial endowment of…
Algorithmic predictions are increasingly informing societal resource allocations by identifying individuals for targeting. Policymakers often build these systems with the assumption that by gathering more observations on individuals, they…
The question of how people vote strategically under uncertainty has attracted much attention in several disciplines. Theoretical decision models have been proposed which vary in their assumptions on the sophistication of the voters and on…
Calibration means that forecasts and average realized frequencies are close. We develop the concept of forecast hedging, which consists of choosing the forecasts so as to guarantee that the expected track record can only improve. This…
In recent years there has been a spate of papers describing systems for probabilisitic reasoning which do not use numerical probabilities. In some cases the simple set of values used by these systems make it impossible to predict how a…
In prediction-based decision-making systems, different perspectives can be at odds: The short-term business goals of the decision makers are often in conflict with the decision subjects' wish to be treated fairly. Balancing these two…
An algorithm that outputs predictions about the state of the world will almost always be designed with the implicit or explicit goal of outputting accurate predictions (i.e., predictions that are likely to be true). In addition, the rise of…
Gambles are random variables that model possible changes in monetary wealth. Classic decision theory transforms money into utility through a utility function and defines the value of a gamble as the expectation value of utility changes.…
We consider statistical estimation of superhedging prices using historical stock returns in a frictionless market with d traded assets. We introduce a plugin estimator based on empirical measures and show it is consistent but lacks suitable…