Related papers: Diversification Preferences and Risk Attitudes
We systematically study pairwise counter-monotonicity, an extremal notion of negative dependence. A stochastic representation and an invariance property are established for this dependence structure. We show that pairwise…
Portfolio optimization involves determining the optimal allocation of portfolio assets in order to maximize a given investment objective. Traditionally, some form of mean-variance optimization is used with the aim of maximizing returns…
We expose a theoretical hedging optimization framework with variational preferences under convex risk measures. We explore a general dual representation for the composition between risk measures and utilities. We study the properties of the…
We study the relationship between firms' performance and their technological portfolios using tools borrowed from the complexity science. In particular, we ask whether the accumulation of knowledge and capabilities related to a coherent set…
Since risky positions in multivariate portfolios can be offset by various choices of capital requirements that depend on the exchange rules and related transaction costs, it is natural to assume that the risk measures of random vectors are…
Take up of microcredit by the poor for investment in businesses or human capital turned out to be very low. We show that this could be explained by risk aversion, without relying on fixed costs or other forms of non-convexity in the…
This paper studies a robust portfolio optimization problem under the multi-factor volatility model introduced by Christoffersen et al. (2009). The optimal strategy is derived analytically under the worst-case scenario with or without…
Portfolio underdiversification is one of the most costly losses accumulated over a household's life cycle. We provide new evidence on the impact of financial inclusion services on households' portfolio choice and investment efficiency using…
A retiree's appetite for risk is a common input into the lifetime utility models that are traditionally used to find optimal strategies for the decumulation of retirement savings. In this work, we consider a retiree with potentially…
We consider the problem of constructing a portfolio that combines traditional financial assets with crypto assets. We show that despite the documented attributes of crypto assets, such as high volatility, heavy tails, excess kurtosis, and…
We present extensive evidence that ``risk premium'' is strongly correlated with tail-risk skewness but very little with volatility. We introduce a new, intuitive definition of skewness and elicit an approximately linear relation between the…
We provide an overview of the relationship between financial networks and systemic risk. We present a taxonomy of different types of systemic risk, differentiating between direct externalities between financial organizations (e.g.,…
We develop a methodology for index tracking and risk exposure control using financial derivatives. Under a continuous-time diffusion framework for price evolution, we present a pathwise approach to construct dynamic portfolios of…
The aim of this study is to present proofs for new theorems. Basic thoughts of new definitions emerge from the decision-making under uncertainty in economics and finance. Shape of the certain utility curve is central to standard definitions…
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.…
Our understanding of risk preferences can be sharpened by considering their evolutionary basis. The existing literature has focused on two sources of risk: idiosyncratic risk and aggregate risk. We introduce a new source of risk, heritable…
This paper studies the continuous time mean-variance portfolio selection problem with one kind of non-linear wealth dynamics. To deal the expectation constraint, an auxiliary stochastic control problem is firstly solved by two new…
Classical mean-variance portfolio theory tells us how to construct a portfolio of assets which has the greatest expected return for a given level of return volatility. Utility theory then allows an investor to choose the point along this…
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…
Specialization and diversification are two major strategies that complex systems might exploit. Given a fixed amount of resources, the question is whether to invest this in elements that respond in a correlated manner to external…