Related papers: Solution to the Equity Premium Puzzle
In the presence of ambiguity on the driving force of market randomness, we consider the dynamic portfolio choice without any predetermined investment horizon. The investment criteria is formulated as a robust forward performance process,…
This paper investigates the optimal retirement decision, investment, and consumption strategies in a market with jump diffusion, taking into account habit persistence and stock-wage correlation. Our analysis considers multiple stocks and a…
This paper develops a risk-adjusted alternative to standard optimal policy learning (OPL) for observational data by importing Roy's (1952) safety-first principle into the treatment assignment problem. We formalize a welfare functional that…
We study an optimal liquidation problem under the ambiguity with respect to price impact parameters. Our main results show that the value function and the optimal trading strategy can be characterized by the solution to a semi-linear PDE…
We consider an online stochastic game with risk-averse agents whose goal is to learn optimal decisions that minimize the risk of incurring significantly high costs. Specifically, we use the Conditional Value at Risk (CVaR) as a risk measure…
One the one hand, rough volatility has been shown to provide a consistent framework to capture the properties of stock price dynamics both under the historical measure and for pricing purposes. On the other hand, market price of volatility…
As reinforcement learning algorithms are being applied to increasingly complicated and realistic tasks, it is becoming increasingly difficult to solve such problems within a practical time frame. Hence, we focus on a \textit{satisficing}…
This paper develops a continuous-time filtering framework for estimating a hazard rate subject to an unobservable change-point. This framework naturally arises in both financial and insurance applications, where the default intensity of a…
This paper presents a discrete--time equity derivatives pricing model with default risk in a no--arbitrage framework. Using the equity--credit reduced form approach where default intensity mainly depends on the firm's equity value, we…
Through a novel approach, this paper shows that substantial change in stock market behavior has a statistically and economically significant impact on equity risk premium predictability both on in-sample and out-of-sample cases. In line…
Managing insurance and financial risk when data is limited is a key task in the insurance industry. In this paper, we focus on cases where the risk distribution is modeled as a mixture with some components estimable to high precision or…
This paper studies the mean-variance optimal portfolio choice of an investor pre-committed to a deterministic investment policy in continuous time in a market with mean-reversion in the risk-free rate and the equity risk-premium. In the…
We present the first calibration of quantum decision theory (QDT) to a dataset of binary risky choice. We quantitatively account for the fraction of choice reversals between two repetitions of the experiment, using a probabilistic choice…
Limited liability creates a conflict of interests between policyholders and shareholders of insurance companies. It provides shareholders with incentives to increase the risk of the insurer's assets and liabilities which, in turn, might…
We propose a reinforcement learning (RL) framework under a broad class of risk objectives, characterized by convex scoring functions. This class covers many common risk measures, such as variance, Expected Shortfall, entropic Value-at-Risk,…
We study the properties of Expected Shortfall from the point of view of financial risk management. This measure --- which emerges as a natural remedy in some cases where Value at Risk (VaR) is not able to distinguish portfolios which bear…
We propose a new procedure for the risk measurement of large portfolios. It employs the following objects as the building blocks: - coherent risk measures introduced by Artzner, Delbaen, Eber, and Heath; - factor risk measures introduced in…
This paper solves the dynamic portfolio choice problem. Using an explicit solution with a power utility, we construct a bridge between a continuous and discrete VAR model to assess portfolio sensitivities. We find, from a well analyzed…
According to theoretical models of valuing risky corporate securities, risk of default is primary component in overall yield spread. However, sizable empirical literature considers it otherwise by giving more importance to non-default risk…
Recently equal risk pricing, a framework for fair derivative pricing, was extended to consider dynamic risk measures. However, all current implementations either employ a static risk measure that violates time consistency, or are based on…