Related papers: Solution to the Equity Premium Puzzle
This article develops a model that takes into account skewness risk in risk parity portfolios. In this framework, asset returns are viewed as stochastic processes with jumps or random variables generated by a Gaussian mixture distribution.…
We study a static portfolio optimization problem with two risk measures: a principle risk measure in the objective function and a secondary risk measure whose value is controlled in the constraints. This problem is of interest when it is…
This paper discusses an alternative explanation for the empirical findings contradicting the positive relationship between risk (variance) and reward (expected return). We show that these contradicting results might be due to the false…
We propose a general family of piecewise hyperbolic absolute risk aversion (PHARA) utilities, including many classic and non-standard utilities as examples. A typical application is the composition of a HARA preference and a piecewise…
This paper investigates a robust optimal consumption, investment, and reinsurance problem for an insurer with Epstein-Zin recursive preferences operating under model uncertainty. The insurer's surplus follows the diffusion approximation of…
In this paper, we develop a penalized realized variance (PRV) estimator of the quadratic variation (QV) of a high-dimensional continuous It\^{o} semimartingale. We adapt the principle idea of regularization from linear regression to…
We study the single-period portfolio selection problem under Constant Relative Risk-Aversion (CRRA) utility through the information-theoretic lens. Assuming only that the market payoff vector has finite support, we show that the…
Hierarchical decision problems are often modeled as bilevel programs in which a leader commits to a policy and a follower responds optimally. When the follower's optimal response is nonunique, or when only near-optimal follower behavior can…
Purpose: This paper explores gender differences in two distinct forms of risk aversion -- Payoff Risk Aversion (PaRA) and Price Risk Aversion (PrRA) -- in order to provide a more nuanced understanding of how men and women respond to…
We consider a power utility maximization problem with additive habits in a framework of discrete-time markets and random endowments. For certain classes of incomplete markets, we establish estimates for the optimal consumption stream in…
This paper re-examines the problem of estimating risk premia in linear factor pricing models. Typically, the data used in the empirical literature are characterized by weakness of some pricing factors, strong cross-sectional dependence in…
Prediction markets are long known for prediction accuracy. This study systematically explores the fundamental properties of prediction markets, addressing questions about their information aggregation process and the factors contributing to…
Possibilistic risk theory starts from the hypothesis that risk is modelled by fuzzy numbers. In particular, in a possibilistic portfolio choice problem, the return of a risky asset will be a fuzzy number. The expected utility operators have…
We study the sensitivity to estimation error of portfolios optimized under various risk measures, including variance, absolute deviation, expected shortfall and maximal loss. We introduce a measure of portfolio sensitivity and test the…
This note investigates the causes of the quality anomaly, which is one of the strongest and most scalable anomalies in equity markets. We explore two potential explanations. The "risk view", whereby investing in high quality firms is…
A multiplicative relative value iteration algorithm for solving the dynamic programming equation for the risk-sensitive control problem is studied for discrete time controlled Markov chains with a compact Polish state space, and controlled…
This paper explores the optimal investment problem of a renewal risk model with generalized Erlang distributed interarrival times. The phases of the Erlang interarrival time is assumed to be observable. The price of the risky asset is…
We study a robust portfolio optimization problem under model uncertainty for an investor with logarithmic or power utility. The uncertainty is specified by a set of possible L\'evy triplets; that is, possible instantaneous drift, volatility…
Sequential portfolio selection has attracted increasing interests in the machine learning and quantitative finance communities in recent years. As a mathematical framework for reinforcement learning policies, the stochastic multi-armed…
This article studies a portfolio optimization problem, where the market consisting of several stocks is modeled by a multi-dimensional jump-diffusion process with age-dependent semi-Markov modulated coefficients. We study risk sensitive…