Related papers: Debt Aversion: Theory and Measurement
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…
This paper shows that black and Hispanic borrowers are 39% more likely to experience a debt collection judgment than white borrowers, even after controlling for credit scores and other relevant credit attributes. The racial gap in judgments…
The paper analyzes the mathematics of the relationship between the default risk and yield-to-maturity of a coupon bond. It is shown that the yield-to-maturity is driven not only by the default probability and recovery rate of the bond but…
Testing by betting has been a cornerstone of the game-theoretic statistics literature. One bets against the null hypothesis, and the accumulated wealth $W_t$ quantifies the evidence against the null hypothesis after $t$ rounds, and the null…
Prospect theory is widely viewed as the best available descriptive model of how people evaluate risk in experimental settings. According to prospect theory, people are risk-averse with respect to gains and risk-seeking with respect to…
A fundamental component in the theoretical school choice literature is the problem a student faces in deciding which schools to apply to. Recent models have considered a set of schools of different selectiveness and a student who is unsure…
In this study, we investigate the causal effect of financial literacy education on a composite financial health score constructed from 17 self-reported financial health and distress metrics ranging from spending habits to confidence in…
There are many studies on development of models for analyzing some derivatives such as credit default swaps .
This paper presents a method for incorporating risk aversion into existing decision tree models used in economic evaluations. The method involves applying a probability weighting function based on rank dependent utility theory to reduced…
A problem of optimal debt management is modeled as a noncooperative game between a borrower and a pool of lenders, in infinite time horizon with exponential discount. The yearly income of the borrower is governed by a stochastic process.…
The lifetime behaviour of loans is notoriously difficult to model, which can compromise a bank's financial reserves against future losses, if modelled poorly. Therefore, we present a data-driven comparative study amongst three techniques in…
This article presents a generic model for pricing financial derivatives subject to counterparty credit risk. Both unilateral and bilateral types of credit risks are considered. Our study shows that credit risk should be modeled as American…
Understanding how individuals make decisions involving risk is a fundamental aspect of behavioral research. Despite the ubiquity of risk in various aspects of life, limited empirical work has explored student risk-taking behavior in…
Mortgage prepayments play a crucial role in the pricing and hedging of mortgage backed securities. An important feature of mortgage prepayment modeling is burnout; as time goes on those borrowers who have the greatest tendency to refinance…
We consider statistical Markov Decision Processes where the decision maker is risk averse against model ambiguity. The latter is given by an unknown parameter which influences the transition law and the cost functions. Risk aversion is…
We elicit incomplete preferences over monetary gambles with subjective uncertainty. Subjects rank gambles, and these rankings are used to estimate preferences; payments are based on estimated preferences. About 40\% of subjects express…
In this paper, we aims to state some proprieties of willingness to pay (WTP) for partial risk reduction and links with insurance within the dual theory of decision. In the case of partial reduction, we get as Langlais (2005) that a…
Do governments adjust budgetary policy to rising public debt, precluding fiscal unsustainability? Using budget data for 52 industrial and emerging economies since 1990, we apply panel methods accounting for cross-sectional dependence and…
We run experimental asset markets to investigate the emergence of excess trading and the occurrence of synchronised trading activity leading to crashes in the artificial markets. The market environment favours early investment in the risky…
The notion of a credit spread curve is fundamental in fixed income investing, but in practice it is not `given' and needs to be constructed from bond prices either for a particular issuer, or for a sector rating-by-rating. Rather than…