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We perform a stability analysis for the utility maximization problem in a general semimartingale model where both liquid and illiquid assets (random endowments) are present. Small misspecifications of preferences (as modeled via expected…
There is a duality theory connecting certain stochastic orderings between cumulative distribution functions F_1,F_2 and stochastic orderings between their inverses F_1^(-1),F_2^(-1). This underlies some theories of utility in the case of…
The present paper introduces a theoretical framework through which the degree of risk aversion with respect to uncertain prices can be measured through the context of the indirect utility function (IUF) using a lab experiment. First, the…
This paper develops a method to derive optimal portfolios and risk premia explicitly in a general diffusion model for an investor with power utility and a long horizon. The market has several risky assets and is potentially incomplete.…
This paper models the US-China trade conflict and attempts to analyze the (optimal) strategic choices. In contrast to the existing literature on the topic, we employ the expected utility theory and examine the conflict mathematically. In…
This paper considers a newly delayed reinsurance and investment optimization problem incorporating random risk aversion, in which an insurer pursues maximization of the expected certainty equivalent of her/his terminal wealth and the…
We obtain variants of the classical von Neumann-Morgenstern expected utility theorem, with and without the completeness axiom, in which the derived Bernoulli utility functions are Lipschitz. The prize space in these results is an arbitrary…
In this paper we take a look at a simple portfolio insurance strategy using a protective put and computationally derive the investor's governing utility structures underlying such a strategy under alternative market scenarios. Investor…
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…
This paper discusses the sensitivity of the long-term expected utility of optimal portfolios for an investor with constant relative risk aversion. Under an incomplete market given by a factor model, we consider the utility maximization…
We propose an axiomatic approach which economically underpins the representation of dynamic preferences in terms of a stochastic utility function, sensitive to the information available to the decision maker. Our construction is iterative…
In this paper, we formulate a qualitative "linear" utility theory for lotteries in which uncertainty is expressed qualitatively using a Spohnian disbelief function. We argue that a rational decision maker facing an uncertain decision…
We consider a utility-maximization problem in a general semimartingale financial model, subject to constraints on the number of shares held in each risky asset. These constraints are modeled by predictable convex-set-valued processes whose…
Approximations to utility indifference prices are provided for a contingent claim in the large position size limit. Results are valid for general utility functions on the real line and semi-martingale models. It is shown that as the…
We consider an insurance company modelling its surplus process by a Brownian motion with drift. Our target is to maximise the expected exponential utility of discounted dividend payments, given that the dividend rates are bounded by some…
The first order loss function and its complementary function are extensively used in practical settings. When the random variable of interest is normally distributed, the first order loss function can be easily expressed in terms of the…
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…
This paper presents a method for incorporating risk aversion into existing decision tree models used in economic evaluations. The method involves applying a probability weighting function based on rank dependent utility theory to reduced…
Strong empirical evidence from laboratory experiments, and more recently from population surveys, shows that individuals, when evaluating their situations, pay attention to whether they experience gains or losses, with losses weighing more…
We study stability properties of the expected utility function in Bayesian optimal experimental design. We provide a framework for this problem in a non-parametric setting and prove a convergence rate of the expected utility with respect to…