Related papers: Decision-making under risk: when is utility maximi…
In a consideration set model, an individual maximizes utility among the considered alternatives. I relate a consideration set additive random utility model to classic discrete choice and the extended additive random utility model, in which…
We consider optimal consumption and portfolio choice in the presence of Knightian uncertainty in continuous-time. We embed the problem into the new framework of stochastic calculus for such settings, dealing in particular with the issue of…
We give a general formulation of the utility maximization problem under nondominated model uncertainty in discrete time and show that an optimal portfolio exists for any utility function that is bounded from above. In the unbounded case,…
Early theories of perception as probabilistic inference propose that uncertainty about the interpretation of sensory input is represented as a probability distribution over many interpretations -- a relatively complex representation.…
In the large financial market, which is described by a model with countably many traded assets, we formulate the problem of the expected utility maximization. Assuming that the preferences of an economic agent are modeled with a stochastic…
In this paper, we study a stochastic optimal control problem with stochastic volatility. We prove the sufficient and necessary maximum principle for the proposed problem. Then we apply the results to solve an investment, consumption and…
We demonstrate a limitation of discounted expected utility, a standard approach for representing the preference to risk when future cost is discounted. Specifically, we provide an example of the preference of a decision maker that appears…
Energy consumption is a main issue of concern in wireless networks. Energy minimization increases the time that networks' nodes work properly without recharging or substituting batteries. Another criterion for network performance is data…
We study the two-times differentiability of the value functions of the primal and dual optimization problems that appear in the setting of expected utility maximization in incomplete markets. We also study the differentiability of the…
This paper studies a continuous-time optimal portfolio selection problem in the complete market for a behavioral investor whose preference is of the prospect type with probability distortion. The investor concerns about the terminal…
The paper provides an overview of the theory and applications of risk-sensitive Markov decision processes. The term 'risk-sensitive' refers here to the use of the Optimized Certainty Equivalent as a means to measure expectation and risk.…
In this paper we present a duality theory for the robust utility maximisation problem in continuous time for utility functions defined on the positive real axis. Our results are inspired by -- and can be seen as the robust analogues of --…
This paper studies a one-sector optimal growth model with i.i.d. productivity shocks that are allowed to be unbounded. The utility function is assumed to be non-negative and unbounded from above. The novel feature in our framework is that…
We characterize optimal monetary policy when policy endogenously moves risk premia through redistribution across agents who differ in their willingness to bear risk. The analytical core is Marginal Risk Capacity, the covariance of monetary…
We study risk-aware linear policy approximations for the optimal operation of an energy system with stochastic wind power, storage, and limited fuel. The resulting problem is a sequential decision-making problem with rolling forecasts. In…
This article is the term paper of the course Investments. We mainly focus on modeling long-term investment decisions of a typical utility-maximizing individual, with features of Chinese stock market in perspective. We adopt an OR based…
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…
We consider a utility maximization problem for an investment-consumption portfolio when the current utility depends also on the wealth process. Such kind of problems arise, e.g., in portfolio optimization with random horizon or with random…
We apply the maximum entropy principle to economic systems in equilibrium and find the density function for the market's wealth. This is the same as price density which is used for insurance pricing. The risk aversion parameter of the agent…
Snapshots of "best" (or "worst") experience are known to dominate human memory and may thus also have a significant effect on future behaviour. We consider here a model of repeated decision-making where, at every time step, an agent takes…