Related papers: Risk Capacity and Optimal Monetary Policy
This paper studies flexible multi-facility capacity expansion with risk aversion. In this setting, the decision maker can periodically expand the capacity of facilities given observations of uncertain demand. We model this situation as a…
Consider a discrete-time system in which a centralized controller (CC) is tasked with assigning at each time interval (or slot) K resources (or servers) to K out of M>=K nodes. When assigned a server, a node can execute a task. The tasks…
We examine optimal regulation of financial networks with debt interdependencies between financial firms. We first show that firms often have an incentive to choose excessively risky portfolios and overly correlate their portfolios with…
We establish structural properties of optimal stopping problems under time-consistent dynamic (coherent) risk measures, focusing on value function monotonicity and the existence of control limit (threshold) optimal policies. While such…
We study the problem of optimal long term portfolio selection with a view to beat a benchmark. Two kinds of objectives are considered. One concerns the probability of outperforming the benchmark and seeks either to minimise the decay rate…
Volatility is the canonical measure of financial risk, a role largely inherited from Modern Portfolio Theory. Yet, its universality rests on restrictive efficiency assumptions that render volatility, at best, an incomplete proxy for true…
This paper studies a systemic risk control problem by the central bank, which dynamically plans monetary supply to stabilize the interbank system with borrowing and lending activities. Facing both heterogeneity among banks and the common…
We study the problem of maximizing a spectral risk measure of a given output function which depends on several underlying variables, whose individual distributions are known but whose joint distribution is not. We establish and exploit an…
In order to model risk aversion in reinforcement learning, an emerging line of research adapts familiar algorithms to optimize coherent risk functionals, a class that includes conditional value-at-risk (CVaR). Because optimizing the…
We investigate the ergodic problem of growth-rate maximization under a class of risk constraints in the context of incomplete, It\^{o}-process models of financial markets with random ergodic coefficients. Including {\em value-at-risk}…
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…
We study the problem of a planner who resolves risk-return trade-offs - like financial investment decisions - on behalf of a collective of agents with heterogeneous risk preferences. The planner's objective is a two-stage utility functional…
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.…
Systematic investment strategies are exposed to a subtle but pervasive vulnerability: the progressive erosion of their effectiveness as market regimes change. Traditional risk measures, designed to capture volatility or drawdowns, overlook…
This paper examines optimal risk sharing for empirically realistic risk attitudes, providing results on Pareto optimality, competitive equilibria, utility frontiers, and the first and second theorems of welfare. Contrary to common…
A robust adaptive model predictive control (MPC) algorithm is presented for linear, time invariant systems with unknown dynamics and subject to bounded measurement noise. The system is characterized by an impulse response model, which is…
Turnpike theorems state that if an investor's utility is asymptotically equivalent to a power utility, then the optimal investment strategy converges to the CRRA strategy as the investment horizon tends to infinity. This paper aims to…
Consider the problem of a government that wants to reduce the debt-to-GDP (gross domestic product) ratio of a country. The government aims at choosing a debt reduction policy which minimises the total expected cost of having debt, plus the…
This paper investigates the finite horizon risk-sensitive portfolio optimization in a regime-switching credit market with physical and information-induced default contagion. It is assumed that the underlying regime-switching process has…
A large class of decision making under uncertainty problems can be described via Markov decision processes (MDPs) or partially observable MDPs (POMDPs), with application to artificial intelligence and operations research, among others.…