Related papers: Risk, utility and sensitivity to large losses
This paper presents non-parametric estimates of spectral risk measures applied to long and short positions in 5 prominent equity futures contracts. It also compares these to estimates of two popular alternative measures, the Value-at-Risk…
We show that a wide class of risk-constrained nonconvex functional optimization problems exhibit strong duality, regardless of nonconvexity. We develop two novel results under distinct sets of assumptions, establishing strong duality over…
One stylized feature of financial volatility impacting the modeling process is long memory. This paper examines long memory for alternative risk measures, observed absolute and squared returns for Daily REITs and compares the findings for a…
We propose a dynamical model for the estimation of Operational Risk in banking institutions. Operational Risk is the risk that a financial loss occurs as the result of failed processes. Examples of operational losses are the ones generated…
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 paper discusses an alternative explanation for the empirical findings contradicting the positive relationship between risk (variance) and reward (expected return). We show that these contradicting results might be due to the false…
Decision-theoretic planning with risk-sensitive planning objectives is important for building autonomous agents or decision-support systems for real-world applications. However, this line of research has been largely ignored in the…
We address the statistical estimation of composite functionals which may be nonlinear in the probability measure. Our study is motivated by the need to estimate coherent measures of risk, which become increasingly popular in finance,…
In this article, we proposed a partition:wise robust loss function based on the previous robust loss function. The characteristics of this loss function are that it achieves high robustness and a wide range of applicability through…
We consider a discrete-time model of a financial market where a risky asset is bought and sold with transactions having a transient price impact. It is shown that the corresponding utility maximization problem admits a solution. We manage…
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…
Systemic risk measures have been shown to be predictive of financial crises and declines in real activity. Thus, forecasting them is of major importance in finance and economics. In this paper, we propose a new forecasting method for…
Elicitability is a property of $\mathbb{R}^k$-valued functionals defined on a set of distribution functions. These functionals represent statistical properties of a distribution, for instance its mean, variance, or median. They are called…
We pursue an inverse approach to utility theory and consumption & investment problems. Instead of specifying an agent's utility function and deriving her actions, we assume we observe her actions (i.e. her consumption and investment…
We develop a tractable model of realization utility that studies the role of reference-dependent S-shaped preferences in a dynamic investment setting with reinvestment. Our model generates both voluntarily realized gains and losses. It…
We study the analyticity of the value function in optimal investment with expected utility from terminal wealth and the relation to stochastically dominant financial models. We identify both a class of utilities and a class of…
We develop a method for computing policies in Markov decision processes with risk-sensitive measures subject to temporal logic constraints. Specifically, we use a particular risk-sensitive measure from cumulative prospect theory, which has…
In this paper we characterise the propensity of big capital investments to systematically deliver poor outcomes as "fragility," a notion suggested by Nassim Taleb. A thing or system that is easily harmed by randomness is fragile. We argue…
Diversification is the typical investment strategy of risk-averse agents. However, non-diversified positions that allocate all resources to a single asset, state of the world or revenue stream are common too. We show that whenever finitely…
We consider the optimal risk sharing problem with a continuum of agents, modeled via a non-atomic measure space. Individual preferences are not assumed to be convex. We show the multiplicity of agents induces the value function to be…