Related papers: Expected utility operators and coinsurance problem
We study the continuous time portfolio optimization model on the market where the mean returns of individual securities or asset categories are linearly dependent on underlying economic factors. We introduce the functional $Q_\gamma$…
We provide and axiomatize a representation for preferences over lotteries that generalizes the expected utility model. Since the representation uses different utility functions to evaluate different lotteries, the preferences can be…
We derive a closed-form expression capturing the degree of Relative Risk Aversion (RRA) of investors for non-"fair" lotteries. We argue that our formula is superior to earlier methods that have been proposed, as it is a function of only…
We consider the problem of option hedging in a market with proportional transaction costs. Since super-replication is very costly in such markets, we replace perfect hedging with an expected loss constraint. Asymptotic analysis for small…
Any firm whose business strategy has an exposure constraint that limits its potential gain naturally considers expansion, as this can increase its exposure. We model business expansion as an enlargement of the opportunity set for business…
We study distributionally robust Expected Shortfall when the distribution of the underlying is perturbed by a size quantified with optimal transport distance based on the quadratic cost function. In the dual version of the robust…
We study Pareto efficiency in a pure-exchange economy where agents' preferences are represented by risk-averse monetary utilities. These coincide with law-invariant monetary utilities, and they can be shown to correspond to the class of…
This study provides a solution of the equity premium puzzle. Questioning the validity of the Arrow-Pratt measure of relative risk aversion for detecting the risk behavior of investors under all conditions, a new tool, that is, the…
We introduce a representation theory for risk operations on locally compact groups in a partition of unity on a topological manifold for Markowitz-Tversky-Kahneman (MTK) reference points. We identify (1) risk torsion induced by the flip…
The sum-utility maximization problem is known to be important in the energy systems literature. The conventional assumption to address this problem is that the utility is concave. But for some key applications, such an assumption is not…
Portfolio selection problems that optimize expected utility are usually difficult to solve. If the number of assets in the portfolio is large, such expected utility maximization problems become even harder to solve numerically. Therefore,…
This study investigates an optimal investment problem for an insurance company operating under the Cramer-Lundberg risk model, where investments are made in both a risky asset and a risk-free asset. In contrast to other literature that…
We give explicit solutions for utility maximization of terminal wealth problem $u(X_T)$ in the presence of Knightian uncertainty in continuous time $[0,T]$ in a complete market. We assume there is uncertainty on both drift and volatility of…
Accounting for model uncertainty in risk management and option pricing leads to infinite dimensional optimization problems which are both analytically and numerically intractable. In this article we study when this hurdle can be overcome…
Nowadays, attitudes towards electricity customers have been changed, so that they are no longer considered static players. The customers behavior identification is vital for establishing modern power systems. This paper utilizes the…
We consider an infinite dimensional optimization problem motivated by mathematical economics. Within the celebrated "Arbitrage Pricing Model", we use probabilistic and functional analytic techniques to show the existence of optimal…
In this paper, we construct the utility-based optimal hedging strategy for a European-type option in the Almgren-Chriss model with temporary price impact. The main mathematical challenge of this work stems from the degeneracy of the second…
The paper deals with a lot sizing problem with ill-known demands modeled by fuzzy intervals whose membership functions are possibility distributions for the values of the uncertain demands. Optimization criteria, in the setting of…
The classical Merton investment problem predicts deterministic, state-dependent portfolio rules; however, laboratory and field evidence suggests that individuals often prefer randomized decisions leading to stochastic and noisy choices.…
Each individual investor is different, with different financial goals, different levels of risk tolerance and different personal preferences. From the point of view of investment management, these characteristics are often defined as…