Related papers: Exact Value Solution to the Equity Premium Puzzle

In this paper, we explore the portfolio allocation problem involving an uncertain covariance matrix. We calculate the expected value of the Constant Absolute Risk Aversion (CARA) utility function, marginalized over a distribution of…

In this paper, we investigate the Merton portfolio management problem in the context of non-exponential discounting. This gives rise to time-inconsistency of the decision-maker. If the decision-maker at time t=0 can commit his/her…

We present a general approach to the pricing of products in finance and insurance in the multi-period setting. It is a combination of the utility indifference pricing and optimal intertemporal risk allocation. We give a characterization of…

Personalized alignment is crucial for enabling Large Language Models (LLMs) to engage effectively in user-centric interactions. However, current methods face a dual challenge: they fail to infer users' deep implicit preferences (including…

In the literature, insurance and reinsurance pricing is typically determined by a premium principle, characterized by a risk measure that reflects the policy seller's risk attitude. Building on the work of Meyers (1980) and Chen et al.…

We study the estimation of risk-sensitive policies in reinforcement learning problems defined by a Markov Decision Process (MDPs) whose state and action spaces are countably finite. Prior efforts are predominately afflicted by computational…

Risk-sensitive reinforcement learning (RL) aims to optimize policies that balance the expected reward and risk. In this paper, we present a novel risk-sensitive RL framework that employs an Iterated Conditional Value-at-Risk (CVaR)…

We propose a discrete time algorithm for the valuation of employee stock options based on exponential indifference prices and taking into account both the possibility of partial exercise of a fraction of the options and the use of a…

Merton portfolio management problem is studied in this paper within a stochastic volatility, non constant time discount rate, and power utility framework. This problem is time inconsistent and the way out of this predicament is to consider…

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…

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…

An uncollateralized swap hedged back-to-back by a CCP swap is used to introduce FVA. The open IR01 of FVA, however, is a sure sign of risk not being fully hedged, a theoretical no-arbitrage pricing concern, and a bait to lure market risk…

We build a simple diagnostic criterion for approximate factor structure in large cross-sectional equity datasets. Given a model for asset returns with observable factors, the criterion checks whether the error terms are weakly…

In the paper, we use and investigate copulas models to represent multivariate dependence in financial time series. We propose the algorithm of risk measure computation using copula models. Using the optimal mean-$CVaR$ portfolio we compute…

We study risk-sensitive planning under partial observability using the dynamic risk measure Iterated Conditional Value-at-Risk (ICVaR). A policy evaluation algorithm for ICVaR is developed with finite-time performance guarantees that do not…

A multiplicative relative value iteration algorithm for solving the dynamic programming equation for the risk-sensitive control problem is studied for discrete time controlled Markov chains with a compact Polish state space, and controlled…

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…

We derive a family of risk-sensitive reinforcement learning methods for agents, who face sequential decision-making tasks in uncertain environments. By applying a utility function to the temporal difference (TD) error, nonlinear…

This dissertation makes three main contributions. First, We identify a new connection between policy gradient and dynamic programming in MMDPs and propose the Coordinate Ascent Dynamic Programming (CADP) algorithm to compute a Markov policy…

This paper extends the classical consumption and portfolio rules model in continuous time (Merton 1969, 1971) to the framework of decision-makers with time-inconsistent preferences. The model is solved for different utility functions for…