Related papers: Information Geometry of Risks and Returns
We consider the problem of optimal hedging in an incomplete market with an established pricing kernel. In such a market, prices are uniquely determined, but perfect hedges are usually not available. We work in the rather general setting of…
This report was originally written as an industry white paper on Hedge Funds. This paper gives an overview to Hedge Funds, with a focus on risk management issues. We define and explain the general characteristics of Hedge Funds, their main…
Each individual investor is different, with different financial goals, different levels of risk tolerance and different personal preferences. From the point of view of investment management, these characteristics are often defined as…
We study information design in games where players choose from a continuum of actions and have continuously differentiable payoffs. We show that an information structure is optimal when the equilibrium it induces can also be implemented in…
Protein structure is generally conceptualized as the global arrangement or of smaller, local motifs of helices, sheets, and loops. These regular, recurring secondary structural elements have well-understood and standardized definitions in…
Forecasting is usually framed as a problem of model choice. This paper starts earlier, asking how much predictive information is available at each horizon. Under logarithmic loss, the answer is exact: the mutual information between the…
Inverse design of high-resolution and fine-detailed 3D lightweight mechanical structures is notoriously expensive due to the need for vast computational resources and the use of very fine-scaled complex meshes. Furthermore, in designing for…
Recently, we presented a framework for understanding protein structure based on the idea that simple constructs of holding hands or touching of objects can be used to rationalize the common characteristics of globular proteins. We developed…
It is known that statistical model selection as well as identification of dynamical equations from available data are both very challenging tasks. Physical systems behave according to their underlying dynamical equations which, in turn, can…
We present a framework for hedging a portfolio of derivatives in the presence of market frictions such as transaction costs, market impact, liquidity constraints or risk limits using modern deep reinforcement machine learning methods. We…
In this paper we study the pricing and hedging of structured products in energy markets, such as swing and virtual gas storage, using the exponential utility indifference pricing approach in a general incomplete multivariate market model…
We maximize the expected utility from terminal wealth for an HARA investor when the market price of risk is an unobservable random variable. We compute the optimal portfolio explicitly and explore the effects of learning by comparing it…
As we know, there is a controversy about the decision making under risk between economists and psychologists. We discuss to build a unified theory of risky choice, which would explain both of compensatory and non-compensatory theories. For…
We use path integrals to calculate hedge parameters and efficacy of hedging in a quantum field theory generalization of the Heath, Jarrow and Morton (HJM) term structure model which parsimoniously describes the evolution of imperfectly…
We have shown recently that the notion of poking pairwise interactions along a chain provides a unifying framework for understanding the formation of both secondary and the tertiary protein structure based on symmetry and geometry.…
A learner does not only fit data; it also determines how strongly the training sample may shape its output and how much distortion it can hedge. We study this relation as a bounded-rational decision problem whose primitive object is the…
In this paper, we combine modern portfolio theory and option pricing theory so that a trader who takes a position in a European option contract and the underlying assets can construct an optimal portfolio such that at the moment of the…
The recent explosion in the amount and dimensionality of data has exacerbated the need of trading off computational and statistical efficiency carefully, so that inference is both tractable and meaningful. We propose a framework that…
We propose a definition of diversification as a binary relationship between financial portfolios. According to it, a convex linear combination of several risk positions with some weights is considered to be less risky than the probabilistic…
We consider one buyer and one seller. For a bundle $(t,q)\in [0,\infty[\times [0,1]=\mathbb{Z}$, $q$ either refers to the wining probability of an object or a share of a good, and $t$ denotes the payment that the buyer makes. We define…