Related papers: Solution to the Equity Premium Puzzle with Time-Va…
Debt aversion can have severe adverse effects on financial decision-making. We propose a model of debt aversion, and design an experiment involving real debt and saving contracts, to elicit and jointly estimate debt aversion with…
In this paper we study the optimal investment and reinsurance problem of an insurance company whose investment preferences are described via a forward dynamic exponential utility in a regime-switching market model. Financial and actuarial…
In this paper we address three main objections of behavioral finance to the theory of rational finance, considered as anomalies the theory of rational finance cannot explain: Predictability of asset returns, The Equity Premium, (The…
This paper empirically analyzes how individual characteristics are associated with risk aversion, loss aversion, time discounting, and present bias. To this end, we conduct a large-scale demographically representative survey across eight…
Our goal is to analyze the system of Hamilton-Jacobi-Bellman equations arising in derivative securities pricing models. The European style of an option price is constructed as a difference of the certainty equivalents to the value functions…
The Merton problem is the well-known stochastic control problem of choosing consumption over time, as well as an investment mix, to maximize expected constant relative risk aversion (CRRA) utility of consumption. Merton formulated the…
This paper studies the optimal risk-averse timing to sell a risky asset. The investor's risk preference is described by the exponential, power, or log utility. Two stochastic models are considered for the asset price -- the geometric…
Customer loyalty is crucial for internet services since retaining users of a service to ensure the staying time of the service is of significance for increasing revenue. It demands the retention of customers to be high enough to meet the…
This paper considers the Merton portfolio management problem. We are concerned with non-exponential discounting of time and this leads to time inconsistencies of the decision maker. Following Ekeland and Pirvu 2006, we introduce the notion…
We study the continuous time portfolio optimization model on the market where the mean returns of individual securities or asset categories are linearly dependent on underlying economic factors. We introduce the functional $Q_\gamma$…
We show that risk-aware behaviors in demand response originate from superquadratic state-dependent cost functions and price uncertainty with skewed distributions. We obtain such results through developing a novel theoretical demand response…
A quadratic discrete time probabilistic model, for optimal portfolio selection in (re-)insurance is studied. For positive values of underwriting levels, the expected value of the accumulated result is optimized, under constraints on its…
A discrete time probabilistic model, for optimal equity allocation and portfolio selection, is formulated so as to apply to (at least) reinsurance. In the context of a company with several portfolios (or subsidiaries), representing both…
The risk premium is one of main concepts in mathematical finance. It is a measure of the trade-offs investors make between return and risk and is defined by the excess return relative to the risk-free interest rate that is earned from an…
In this paper, we propose an equilibrium pricing model in a dynamic multi-period stochastic framework with uncertain income streams. In an incomplete market, there exist two traded risky assets (e.g. stock/commodity and weather derivative)…
Financial portfolios are often optimized for maximum profit while subject to a constraint formulated in terms of the Conditional Value-at-Risk (CVaR). This amounts to solving a linear problem. However, in its original formulation this…
Consider an insurance company exposed to a stochastic economic environment that contains two kinds of risk. The first kind is the insurance risk caused by traditional insurance claims, and the second kind is the financial risk resulting…
This paper studies continuous-time risk-sensitive reinforcement learning (RL) under the entropy-regularized, exploratory diffusion process formulation with the exponential-form objective. The risk-sensitive objective arises either as the…
In this paper we investigate the expected terminal utility maximization approach for a dynamic stochastic portfolio optimization problem. We solve it numerically by solving an evolutionary Hamilton-Jacobi-Bellman equation which is…
In real-world decision-making problems, for instance in the fields of finance, robotics or autonomous driving, keeping uncertainty under control is as important as maximizing expected returns. Risk aversion has been addressed in the…