Related papers: Profit and loss attribution: An empirical study
We revisit the classical Merton consumption--investment problem when risky-asset returns are modeled by stochastic differential equations interpreted through a general $\alpha$-integral, interpolating between It\^{o}, Stratonovich, and…
Despite the growing popularity of machine-learning techniques in decision-making, the added value of causal-oriented strategies with respect to pure machine-learning approaches has rarely been quantified in the literature. These strategies…
In this paper, we introduce a model that adds a non-linearity to discounting: the discounting factor may depend on the notional (i.e., discounted values are no longer linear in the notional). In the first part of the paper, we provide a…
In this paper we discuss a general methodology to compute the market risk measure over long time horizons and at extreme percentiles, which are the typical conditions needed for estimating Economic Capital. The proposed approach extends the…
The long term estimation of the Marxist average rate of profit does not adhere to a theoretically grounded standard regarding which economic activities should or should not be included for such purposes, which is relevant because…
Any optimization algorithm based on the risk parity approach requires the formulation of portfolio total risk in terms of marginal contributions. In this paper we use the independence of the underlying factors in the market to derive the…
In this paper, we present an adaptive investment strategy for environments with periodic returns on investment. In our approach, we consider an investment model where the agent decides at every time step the proportion of wealth to invest…
A growing body of evidence has shown that incorporating behavioral economics principles into the design of financial incentive programs helps improve their cost-effectiveness, promote individuals' short-term engagement, and increase…
This paper develops a decomposition methodology for common agency games in which each principal's payoff depends on her own outcome and the agent's type, but not on rivals' outcomes. The key step reduces each principal's best-response…
Remarkable progress has been made in difference-in-differences (DID) approaches to causal inference that estimate the average effect of a treatment on the treated (ATT). Of these, the semiparametric DID (SDID) approach incorporates a…
In this paper, to determine the financial risks faced by an industrial company, assessing the relative importance of these risks and identifying the years most exposed to financial risk using modern multi-criteria decision-making…
In this paper, we revisit the relationship between investors' utility functions and portfolio allocation rules. We derive portfolio allocation rules for asymmetric Laplace distributed $ALD(\mu,\sigma,\kappa)$ returns and compare them with…
We create a time series model for annual returns of three asset classes: the USA Standard & Poor (S&P) stock index, the international stock index, and the USA Bank of America investment-grade corporate bond index. Using this, we made an…
As financial institutions increasingly rely on machine learning models to automate lending decisions, concerns about algorithmic fairness have risen. This paper explores the tradeoff between enforcing fairness constraints (such as…
Portfolio optimization tasks describe sequential decision problems in which the investor's wealth is distributed across a set of assets. Allocation constraints are used to enforce minimal or maximal investments into particular subsets of…
We study the hedging and valuation of European and American claims on a non-traded asset $Y$, when a traded stock $S$ is available for hedging, with $S$ and $Y$ following correlated geometric Brownian motions. This is an incomplete market,…
Securities borrowing and lending are critical to proper functioning of securities markets. To alleviate securities owners' exposure to borrower default risk, overcollateralization and indemnification are provided by the borrower and the…
Although the CML (Capital Market Line), the Intertemporal-CAPM, the CAPM/SML (Security Market Line) and the Intertemporal Arbitrage Pricing Theory (IAPT) are widely used in portfolio management, valuation and capital markets financing;…
In supervised learning one wishes to identify a pattern present in a joint distribution $P$, of instances, label pairs, by providing a function $f$ from instances to labels that has low risk $\mathbb{E}_{P}\ell(y,f(x))$. To do so, the…
We introduce an interactive market setup with sequential auctions where agents receive variegated signals with a known deadline. The effects of differential information and mutual learning on the allocation of overall profit \& loss (P\&L)…