Related papers: Gain-Loss Hedging and Cumulative Prospect Theory
We establish a connection between dependence structures and subclasses of distortion riskmetrics under which the latter are additive. A new notion of positive dependence, called partial comonotonicity, is developed, which nests the existing…
Cumulative prospect theory (CPT) is known to model human decisions well, with substantial empirical evidence supporting this claim. CPT works by distorting probabilities and is more general than the classic expected utility and coherent…
Lotteries are a prevalent form of gambling between a seller and buyers. Designing a lottery requires a model of how buyers make decisions when confronted with uncertain outcomes. Cumulative prospect theory (CPT) is a descriptive model that…
The classical notion of comonotonicity has played a pivotal role when solving diverse problems in economics, finance, and insurance. In various practical problems, however, this notion of extreme positive dependence structure is overly…
We consider the problem of choosing a portfolio that maximizes the cumulative prospect theory (CPT) utility on an empirical distribution of asset returns. We show that while CPT utility is not a concave function of the portfolio weights, it…
In this article, inspired by Shi, et al. we investigate the optimal portfolio selection with one risk-free asset and one risky asset in a multiple period setting under cumulative prospect theory (CPT). Compared with their study, our novelty…
Users can now give back energies to the grid using distributed resources. Proper incentive mechanisms are required for such users, also known as prosumers, in order to maximize the sell-back amount while maintaining the retailer's profit.…
Situations where a group of agents come together to jointly buy a resource that they individually cannot afford to buy are commonly observed in markets. For example in the US market for radio spectrum, a recent proposal invited small firms…
Two active dielectric materials may be blended together to realize a homogenized composite material (HCM) which exhibits more gain than either component material. Likewise, two dissipative dielectric materials may be blended together to…
Regulatory and contractual constraints on individual exposures are standard in insurance and reinsurance markets, but a poorly designed constraint can distort the economic incentives of risk-averse agents. In the unconstrained problem, the…
The most commonly accepted model for investors' preferences is expected utility theory. More recently, other theories have emerged and pose new challenges to mathematics. The present paper treats preferences of cumulative prospect theory…
This paper introduces a space of variable lotteries and proves a constructive version of the expected utility theorem. The word ``constructive'' is used here in two senses. First, as in constructive mathematics, the logic underlying proofs…
We investigate the well-posedness of a general class of singular stochastic control problems in which controls are processes of finite variation. We develop an abstract framework, which we then apply to storage management and portfolio…
Comonotonicity (``same variation'') of random variables minimizes hedging possibilities and has been widely used, e.g., in Gilboa and Schmeidler's ambiguity models. This paper investigates anticomonotonicity (``opposite variation'';…
We study optimal investment problems under the framework of cumulative prospect theory (CPT). A CPT investor makes investment decisions in a single-period financial market with transaction costs. The objective is to seek the optimal…
The purpose of this article is to introduce, analyze and compare two performance participation methods based on a portfolio consisting of two risky assets: Option-Based Performance Participation (OBPP) and Constant Proportion Performance…
We consider repeated games where the players behave according to cumulative prospect theory (CPT). We show that, when the players have calibrated strategies and behave according to CPT, the natural analog of the notion of correlated…
In this paper, we focus on efficient risk-sharing rules for the concave dominance order. For a univariate risk, it follows from a comonotone dominance principle, due to Landsberger and Meilijson [25], that efficiency is characterized by a…
We propose a multivariate extension of Yaari's dual theory of choice under risk. We show that a decision maker with a preference relation on multidimensional prospects that preserves first order stochastic dominance and satisfies…
We introduce a resource allocation framework for goal-oriented semantic networks, where participating agents assess system quality through subjective (e.g., context-dependent) perceptions. To accommodate this, our model accounts for agents…