Related papers: Local Utility and Multivariate Risk Aversion
This paper studies a one-sector optimal growth model with i.i.d. productivity shocks that are allowed to be unbounded. The utility function is assumed to be non-negative and unbounded from above. The novel feature in our framework is that…
Our goal is to extract useful knowledge from demonstrations of behavior in sequential decision-making problems. Although it is well-known that humans commonly engage in risk-sensitive behaviors in the presence of stochasticity, most Inverse…
In this paper we show that the expected generalisation performance of a learning machine is determined by the distribution of risks or equivalently its logarithm -- a quantity we term the risk entropy -- and the fluctuations in a quantity…
One stylized feature of financial volatility impacting the modeling process is long memory. This paper examines long memory for alternative risk measures, observed absolute and squared returns for Daily REITs and compares the findings for a…
We study combinations of risk measures under no restrictive assumption on the set of alternatives. We develop and discuss results regarding the preservation of properties and acceptance sets for the combinations of risk measures. One of the…
This paper investigates a novel behavioral feature of recursive preferences: aversion to risks that persist over time, or simply \textit{correlation aversion}. Greater persistence provides information about future consumption but reduces…
In this article, we consider two forms of shrinkage estimators of the mean $\theta$ of a multivariate normal distribution $X\sim N_{p}\left(\theta, \sigma^{2}I_{p}\right)$ where $\sigma^{2}$ is unknown. We take the prior law $\theta \sim…
We consider the robust utility maximization using a static holding in derivatives and a dynamic holding in the stock. There is no fixed model for the price of the stock but we consider a set of probability measures (models) which are not…
In choice under risk, there is a standard notion of 'less risk-averse than', due to Yaari (1969). In the theory of comparative statics, the single-crossing property is satisfied by all weighted averages of a family of single-crossing…
Recent literature in the last Maximum Entropy workshop introduced an analogy between cumulative probability distributions and normalized utility functions. Based on this analogy, a utility density function can de defined as the derivative…
This paper studies robust forward investment and consumption preferences and optimal strategies for a risk-averse and ambiguity-averse agent in an incomplete financial market with drift and volatility uncertainties. We focus on non-zero…
In hedge funds, convex compensation schemes are adopted to stimulate a high-profit performance for portfolio managers. In economics, non-monotone risk aversion is proposed to argue that individuals may not be risk-averse when the wealth…
Portfolio diversification is a cornerstone of modern finance, while risk aversion is central to decision theory; both concepts are long-standing and foundational. We investigate their connections by studying how different forms of…
In statistical physics, the conservation of particle number results in the equalization of the chemical potential throughout a system at equilibrium. In contrast, the homogeneity of utility in socio-economic models is usually thought to…
We study the closure properties of the class of Bivariate Regular Variation, symbolically BRV , in standard and nonstandard cases, with respect to the randomly weighted sums. However, we take into consideration a weak dependence structure…
We extend the limited participation model in Basak and Cuoco (1998) to allow for traders with different time-preference coefficients but identical constant relative risk-aversion coefficients. Our main result gives parameter restrictions…
Reliability (survival analysis, to biostatisticians) is a key ingredient for mak- ing decisions that mitigate the risk of failure. The other key ingredient is utility. A decision theoretic framework harnesses the two, but to invoke this…
This survey gives an introduction to monetary measures of risk as monotone and cash additive functions on spaces of univariate random variables. Primal and dual representation results as well as several examples are discussed. Principal…
This paper solves the consumption-investment problem under Epstein-Zin preferences on a random horizon. In an incomplete market, we take the random horizon to be a stopping time adapted to the market filtration, generated by all observable,…
We consider the classical multi-asset Merton investment problem under drift uncertainty, i.e. the asset price dynamics are given by geometric Brownian motions with constant but unknown drift coefficients. The investor assumes a prior drift…