Related papers: Risk-Adjusted Valuation for Real Option Decisions
Many biological, psychological and economic experiments have been designed where an organism or individual must choose between two options that have the same expected reward but differ in the variance of reward received. In this way,…
We study the modelling and valuation of surrender and other behavioural options in life insurance and pension. We place ourselves in between the two extremes of completely arbitrary intervention and optimal intervention by the policyholder.…
Signals coming from multivariate higher order conditional moments as well as the information contained in exogenous covariates, can be effectively exploited by rational investors to allocate their wealth among different risky investment…
Prediction models calibrated using historical data may forecast poorly if the dynamics of the present and future differ from observations in the past. For this reason, predictions can be improved if information like forward looking views…
The question of pricing and hedging a given contingent claim has a unique solution in a complete market framework. When some incompleteness is introduced, the problem becomes however more difficult. Several approaches have been adopted in…
This paper introduces marginal fairness, a new individual fairness notion for equitable decision-making in the presence of protected attributes such as gender, race, and religion. This criterion ensures that decisions based on generalized…
This paper considers the security investment problem over a network in which the resource owners aim to allocate their constrained security resources to heterogeneous targets strategically. Investing in each target makes it less vulnerable,…
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…
Pricing decisions stand out as one of the most critical tasks a company faces, particularly in today's digital economy. As with other business decision-making problems, pricing unfolds in a highly competitive and uncertain environment.…
Climate adaptation could yield significant benefits. However, the uncertainty of which future climate scenarios will occur decreases the feasibility of proactively adapting. Climate adaptation projects could be underwritten by benefits paid…
We consider a financial market in which traders potentially face restrictions in trading some of the available securities. Traders are heterogeneous with respect to their beliefs and risk profiles, and the market is assumed thin: traders…
The classical discrete time model of proportional transaction costs relies on the assumption that a feasible portfolio process has solvent increments at each step. We extend this setting in two directions, allowing for convex transaction…
In this paper we revisit Burnett (2021) \& Burnett and Williams (2021)'s notion of hedging valuation adjustment (HVA), originally intended to deal with dynamic hedging frictions such as transaction costs, in the direction of model risk. The…
This paper introduces a novel stochastic control framework to enhance the capabilities of automated investment managers, or robo-advisors, by accurately inferring clients' investment preferences from past activities. Our approach leverages…
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…
Evaluating the financial performance of manufacturing firms requires consideration of both the time value of money and the relative importance of multiple decision criteria. Conventional approaches relying solely on deterministic…
This paper studies the optimal timing to liquidate credit derivatives in a general intensity-based credit risk model under stochastic interest rate. We incorporate the potential price discrepancy between the market and investors, which is…
We show that disentangling sentiment-induced biases from fundamental expectations significantly improves the accuracy and consistency of probabilistic forecasts. Using data from 1994 to 2017, we analyze 15 stochastic models and…
We propose a continuous-time model of trading with heterogeneous beliefs. Risk-neutral agents face quadratic costs-of-carry on positions and thus their marginal valuations decrease with the size of their position, as it would be the case…
In many countries financial service providers have to elicit their customers risk preferences, when offering products and services. For instance, in the Netherlands pension funds will be legally obliged to factor in their clients risk…