Related papers: Solution to the Equity Premium Puzzle
We study the optimal portfolio selection problem under relative performance criteria in the market model with random coefficients from the perspective of many players game theory. We consider five random coefficients which consist of three…
This paper focuses on a dynamic multi-asset mean-variance portfolio selection problem under model uncertainty. We develop a continuous time framework for taking into account ambiguity aversion about both expected return rates and…
Most work in mechanism design assumes that buyers are risk neutral; some considers risk aversion arising due to a non-linear utility for money. Yet behavioral studies have established that real agents exhibit risk attitudes which cannot be…
In this paper we study the optimal investment and reinsurance problem of an insurance company whose investment preferences are described via a forward dynamic exponential utility in a regime-switching market model. Financial and actuarial…
This paper considers equity premium prediction, for which mean regression can be problematic due to heteroscedasticity and heavy-tails of the error. We show advantages of quantile predictions using a novel penalized quantile regression that…
This paper studies a continuous-time optimal portfolio selection problem in the complete market for a behavioral investor whose preference is of the prospect type with probability distortion. The investor concerns about the terminal…
This paper studies an optimal investing problem for a retiree facing longevity risk and living standard risk. We formulate the investing problem as a portfolio choice problem under a time-varying risk capacity constraint. We derive the…
Value-at-Risk (VaR) and Conditional Value-at-Risk (CVaR) are popular risk measures from academic, industrial and regulatory perspectives. The problem of minimizing CVaR is theoretically known to be of Neyman-Pearson type binary solution. We…
This work initiates research into the problem of determining an optimal investment strategy for investors with different attitudes towards the trade-offs of risk and profit. The probability distribution of the return values of the stocks…
Estimating the covariance of asset returns, i.e., the risk model, is a key component of financial portfolio construction and evaluation. Most risk modeling approaches produce a factor model that decomposes the asset variability into two…
We study portfolio selection in a complete continuous-time market where the preference is dictated by the rank-dependent utility. As such a model is inherently time inconsistent due to the underlying probability weighting, we study the…
We study submodularity for law-invariant functionals, with particular attention to convex risk measures. Expected losses are modular, and certainty equivalents are submodular exactly when the loss function is convex. Law-invariant coherent…
This paper is concerned with the uniqueness issue of open-loop equilibrium investment strategies of dynamic mean-variance portfolio selection problems with random coefficients. A unified method is developed to treat both the problems with…
This paper investigates portfolio selection within a continuous-time financial market with regime-switching and beliefs-dependent utilities. The market coefficients and the investor's utility function both depend on the market regime, which…
This paper is the first study to examine the time instability of the APT in the Japanese stock market. In particular, we measure how changes in each risk factor affect the stock risk premiums to investigate the validity of the APT over…
We consider statistical Markov Decision Processes where the decision maker is risk averse against model ambiguity. The latter is given by an unknown parameter which influences the transition law and the cost functions. Risk aversion is…
We use a continuous version of the standard deviation premium principle for pricing in incomplete equity markets by assuming that the investor issuing an unhedgeable derivative security requires compensation for this risk in the form of a…
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…
Several authors have recently developed risk-sensitive policy gradient methods that augment the standard expected cost minimization problem with a measure of variability in cost. These studies have focused on specific risk-measures, such as…
This paper shows how to identify and estimate the seller's risk parameter in an ascending auction. We consider a semiparametric model where the seller has a parametric utility function (such as CARA or CRRA) and the distribution of bidder…