Related papers: Non-diversified portfolios with subjective expecte…
Previous literature shows that prevalent risk measures such as Value at Risk or Expected Shortfall are ineffective to curb excessive risk-taking by a tail-risk-seeking trader with S-shaped utility function in the context of portfolio…
We consider social welfare functions when the preferences of individual agents and society maximize subjective expected utility in the tradition of Savage. A system of axioms is introduced whose unique solution is the social welfare…
We consider insurance derivatives depending on an external physical risk process, for example a temperature in a low dimensional climate model. We assume that this process is correlated with a tradable financial asset. We derive optimal…
We study how to assess the potential benefit of diversifying an equity portfolio by investing within and across equity sectors. We analyse 20 years of US stock price data, which includes the global financial crisis (GFC) and the COVID-19…
We consider a multi-stock continuous time incomplete market model with random coefficients. We study the investment problem in the class of strategies which do not use direct observations of the appreciation rates of the stocks, but rather…
Much of uncertainty quantification to date has focused on determining the effect of variables modeled probabilistically, and with a known distribution, on some physical or engineering system. We develop methods to obtain information on the…
Large distributed multiagent systems are characterized by vast numbers of agents trying to gain access to limited resources in an unpredictable environment. Agents in these system continuously switch strategies in order to opportunistically…
We maximize the expected utility of terminal wealth in an incomplete market where there are cone constraints on the investor's portfolio process and the utility function is not assumed to be strictly concave or differentiable. We establish…
Financial portfolio optimization is a widely studied problem in mathematics, statistics, financial and computational literature. It adheres to determining an optimal combination of weights associated with financial assets held in a…
This paper investigates the problem of ensembling multiple strategies for sequential portfolios to outperform individual strategies in terms of long-term wealth. Due to the uncertainty of strategies' performances in the future market, which…
We show that under plausible levels of background risk, no theory of choice under risk -- such as expected utility theory, prospect theory, or rank dependent utility -- can simultaneously satisfy the following three economic postulates: (i)…
We analyze multiline pricing and capital allocation in equilibrium no-arbitrage markets. Existing theories often assume a perfect complete market, but when pricing is linear, there is no diversification benefit from risk pooling and…
Decision-making pipelines are generally characterized by tradeoffs among various risk functions. It is often desirable to manage such tradeoffs in a data-adaptive manner. As we demonstrate, if this is done naively, state-of-the art…
We present an approach to derivative exposure management based on subjective and implied probabilities. We suggest to maximize the valuation difference subject to risk constraints and propose a class of risk measures derived from the…
We provide an axiomatic foundation for the representation of num\'{e}raire-invariant preferences of economic agents acting in a financial market. In a static environment, the simple axioms turn out to be equivalent to the following choice…
Mutually exclusive decisions have been studied for decades. Many well-known decision theories have been defined to help people either to make rational decisions or to interpret people's behaviors, such as expected utility theory, regret…
We study a continuous-time portfolio choice problem for an investor whose state-dependent preferences are determined by an exogenous factor that evolves as an It\^o diffusion process. Since risk attitudes at the end of the investment…
The choice of admissible trading strategies in mathematical modelling of financial markets is a delicate issue, going back to Harrison and Kreps (1979). In the context of optimal portfolio selection with expected utility preferences this…
In economics, risk aversion is modeled via a concave Bernoulli utility within the expected-utility paradigm. We propose a simple test of expected utility and concavity. We find little support for either: only 30 percent of the choices are…
We consider the mechanism design problem of a principal allocating a single good to one of several agents without monetary transfers. Each agent desires the good and uses it to create value for the principal. We designate this value as the…