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We propose a novel approach to infer investors' risk preferences from their portfolio choices, and then use the implied risk preferences to measure the efficiency of investment portfolios. We analyze a dataset spanning a period of six…
This paper studies a composite problem involving the decision making of the optimal entry time and dynamic consumption afterwards. In stage-1, the investor has access to full market information subjecting to some information costs and needs…
I propose an approach to quantify attention to inflation in the data and show that the decrease in the volatility and persistence of U.S. inflation after the Great Inflation period was accompanied by a decline in the public's attention to…
This paper investigates risk measures derived from the expected maximum deficit in a continuous-time framework and develops optimal reserve allocation strategies across multiple lines of business. We formalize the expected maximum deficit…
In life-cycle economics the Samuelson paradigm (Samuelson, 1969) states that the optimal investment is in constant proportions out of lifetime wealth composed of current savings and the present value of future income. It is well known that…
We consider a discrete-time, generically incomplete market model and a behavioural investor with power-like utility and distortion functions. The existence of optimal strategies in this setting has been shown in a previous paper under…
Empirical evidence shows that wealthy households have substantially higher saving rates and markedly lower marginal propensity to consume (MPC) than other groups. Existing theory cannot account for this pattern unless under restrictive…
Prior to the financial crisis mortgage securitization models increased in sophistication as did products built to insure against losses. Layers of complexity formed upon a foundation that could not support it and as the foundation crumbled…
It is known that the decision to purchase an annuity may be associated to an optimal stopping problem. However, little is known about optimal strategies, if the mortality force is a generic function of time and if the `subjective' life…
This paper studies a loss-averse version of the multiplicative habit formation preference and the corresponding optimal investment and consumption strategies over an infinite horizon. The agent's consumption preference is depicted by a…
This paper studies a search problem where a consumer is initially aware of only a few products. At every point in time, the consumer then decides between searching among alternatives he is already aware of and discovering more products. I…
As the developed world replaces Defined Benefit (DB) pension plans with Defined Contribution (DC) plans, there is a need to develop decumulation strategies for DC plan holders. Optimal decumulation can be viewed as a problem in optimal…
Human beings are creatures of habit. In their daily life, people tend to repeatedly consume similar types of food items over several days and occasionally switch to consuming different types of items when the consumptions become overly…
Tasks that require information about the world imply a trade-off between the time spent on observation and the variance of the response. In particular, fast decisions need to rely on uncertain information. However, standard estimates of…
In optimal control problems, disturbances are typically dealt with using robust solutions, such as H-infinity or tube model predictive control, that plan control actions feasible for the worst-case disturbance. Yet, planning for every…
The effects of saving and spending patterns on holding time distribution of money are investigated based on the ideal gas-like models. We show the steady-state distribution obeys an exponential law when the saving factor is set uniformly,…
Motivated by applications where impatience is pervasive and evaluation times are uncertain, we study a selection model where options may expire at an unknown point in time and evaluation times are stochastic. Initially, the decision-maker…
In this paper, we investigate the Merton portfolio management problem in the context of non-exponential discounting. This gives rise to time-inconsistency of the decision-maker. If the decision-maker at time t=0 can commit his/her…
We relate the strategy sets that a player ends up with after refining his own strategies according to two very different models of rationality: namely, utility maximization and regret minimization.
The equity risk premium puzzle is that the return on equities has far exceeded the average return on short-term risk-free debt and cannot be explained by conventional representative-agent consumption based equilibrium models. We review a…