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In the world of modern financial theory, portfolio construction has traditionally operated under at least one of two central assumptions: the constraints are derived from a utility function and/or the multivariate probability distribution…
The lifetime behaviour of loans is notoriously difficult to model, which can compromise a bank's financial reserves against future losses, if modelled poorly. Therefore, we present a data-driven comparative study amongst three techniques in…
In this paper we present a continuous time dynamical model of heterogeneous agents interacting in a financial market where transactions are cleared by a market maker. The market is composed of fundamentalist, trend following and contrarian…
In risk-sharing markets with aggregate uncertainty, characterizing Pareto-optimal allocations when agents might not be risk averse is a challenging task, and the literature has only provided limited explicit results thus far. In particular,…
We provide a unifying way to analyze how risk aversion changes bidding in auctions by asking which bids become more attractive as bidders become more risk averse. In first-price auctions, under two payoff conditions--winning is never worse…
In nature and human societies, the effects of homogeneous and heterogeneous characteristics on the evolution of collective behaviors are quite different from each other. It is of great importance to understand the underlying mechanisms of…
The standard asset pricing models (the CCAPM and the Epstein-Zin non-expected utility model) counterintuitively predict that equilibrium asset prices can rise if the representative agent's risk aversion increases. If the income effect,…
This paper is part of the research on the interlinkages between insurers and their contribution to systemic risk on the insurance market. Its main purpose is to present the results of the analysis of linkage dynamics and systemic risk in…
When the planning horizon is long, and the safe asset grows indefinitely, isoelastic portfolios are nearly optimal for investors who are close to isoelastic for high wealth, and not too risk averse for low wealth. We prove this result in a…
We set up a structural model to study credit risk for a portfolio containing several or many credit contracts. The model is based on a jump--diffusion process for the risk factors, i.e. for the company assets. We also include correlations…
We identify a subtle security issue that impacts the design of smart contracts, because agents may themselves deploy smart contracts (side contracts). Typically, equilibria of games are analyzed in vitro, under the assumption that players…
We propose a multi-factor polynomial framework to model and hedge long-term electricity contracts with delivery period. This framework has several advantages: the computation of forwards, risk premium and correlation between different…
We study the optimal decisions and equilibria of agents who aim to minimize their risks by allocating their positions over extremely heavy-tailed (i.e., infinite-mean) and possibly dependent losses. The loss distributions of our focus are…
Results from the communication complexity literature have demonstrated that stable matching requires communication: one cannot find or verify a stable match without having access to essentially all of the ordinal preference information held…
The transition to a fully decarbonised electricity system depends on integrating new technologies that ensure reliability alongside sustainability. However, missing risk markets hinder investment in reliability-enhancing technologies by…
Credit and liquidity risks represent main channels of financial contagion for interbank lending markets. On one hand, banks face potential losses whenever their counterparties are under distress and thus unable to fulfill their obligations.…
This note investigates the causes of the quality anomaly, which is one of the strongest and most scalable anomalies in equity markets. We explore two potential explanations. The "risk view", whereby investing in high quality firms is…
We present a general framework for measuring the liquidity risk. The theoretical framework defines a class of risk measures that incorporate the liquidity risk into the standard risk measures. We consider a one-period risk measurement…
We propose an end-to-end distributionally robust system for portfolio construction that integrates the asset return prediction model with a distributionally robust portfolio optimization model. We also show how to learn the risk-tolerance…
Optimal reinsurance when Value at Risk and expected surplus is balanced through their ratio is studied, and it is demonstrated how results for risk-adjusted surplus can be utilized. Simplifications for large portfolios are derived, and this…