Related papers: Exact Value Solution to the Equity Premium Puzzle
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…
The paper has 2 main goals: 1. We propose a variant of the CAPM based on coherent risk. 2. In addition to the real-world measure and the risk-neutral measure, we propose the third one: the extreme measure. The introduction of this measure…
Cross-validation (CV) is one of the most popular tools for assessing and selecting predictive models. However, standard CV suffers from high computational cost when the number of folds is large. Recently, under the empirical risk…
We consider the optimal investment and marginal utility pricing problem of a risk averse agent and quantify their exposure to a small amount of model uncertainty. Specifically, we compute explicitly the first-order sensitivity of their…
Robust Markov Decision Processes (RMDPs) have received significant research interest, offering an alternative to standard Markov Decision Processes (MDPs) that often assume fixed transition probabilities. RMDPs address this by optimizing…
We consider an online stochastic game with risk-averse agents whose goal is to learn optimal decisions that minimize the risk of incurring significantly high costs. Specifically, we use the Conditional Value at Risk (CVaR) as a risk measure…
In high-stakes machine learning applications, it is crucial to not only perform well on average, but also when restricted to difficult examples. To address this, we consider the problem of training models in a risk-averse manner. We propose…
We study the two-times differentiability of the value functions of the primal and dual optimization problems that appear in the setting of expected utility maximization in incomplete markets. We also study the differentiability of the…
We consider the mean--variance portfolio optimization problem under the game theoretic framework and without risk-free assets. The problem is solved semi-explicitly by applying the extended Hamilton--Jacobi--Bellman equation. Although the…
In many sequential decision-making problems we may want to manage risk by minimizing some measure of variability in costs in addition to minimizing a standard criterion. Conditional value-at-risk (CVaR) is a relatively new risk measure that…
We consider a collection of derivatives that depend on the price of an underlying asset at expiration or maturity. The absence of arbitrage is equivalent to the existence of a risk-neutral probability distribution on the price; in…
The comparative statics of the optimal portfolios across individuals is carried out for a continuous-time complete market model, where the risky assets price process follows a joint geometric Brownian motion with time-dependent and…
We analyze 18 quadrillion models for the joint pricing of corporate bond and stock returns. Strikingly, we find that equity and nontradable factors alone suffice to explain corporate bond risk premia once their Treasury term structure risk…
We present the first calibration of quantum decision theory (QDT) to a dataset of binary risky choice. We quantitatively account for the fraction of choice reversals between two repetitions of the experiment, using a probabilistic choice…
In several real-world applications involving decision making under uncertainty, the traditional expected value objective may not be suitable, as it may be necessary to control losses in the case of a rare but extreme event. Conditional…
We show in a simulation when economic agents are subject to evolution (random change and selection based on the success in the estimation of the result of the gamble) they acquire risk aversive behavior. This behavior appears in the form of…
A method for calculating multi-portfolio time consistent multivariate risk measures in discrete time is presented. Market models for $d$ assets with transaction costs or illiquidity and possible trading constraints are considered on a…
We investigate the portfolio selection problem for an agent with rank-dependent utility in an incomplete financial market. For a constant-coefficient market and CRRA utilities, we characterize the deterministic strict equilibrium…
We study a discrete-time multi-period portfolio optimization problem under an explicit constraint on the Deviation Conditional Value-at-Risk (DCVaR), defined as the excess of Conditional Value-at-Risk over expected terminal wealth. The…
We discuss the asymptotic behaviour of risk-based indifference prices of European contingent claims in discrete-time financial markets under volatility uncertainty as the number of intermediate trading periods tends to infinity. The…