Related papers: Risk aversion in economic transactions
A range of empirical puzzles in finance has been explained as a consequence of traders being averse to ambiguity. Ambiguity averse traders can behave in financial portfolio problems in ways that cannot be rationalized as maximizing…
Financial asset markets are sociotechnical systems whose constituent agents are subject to evolutionary pressure as unprofitable agents exit the marketplace and more profitable agents continue to trade assets. Using a population of evolving…
Ergodicity economics is a new branch of economic theory that notes the conceptual difference between time averages and expectation values, which coincide only for ergodic observables. It postulates that individual agents maximise the time…
The frequent occurrence of natural disasters has posed significant challenges to society, necessitating the urgent development of effective risk management strategies. From the early informal community-based risk sharing mechanisms to…
We provide simple models for the utility function (or psychology) of an actor trading a multitude of goods for money. In this framework, money has no intrinsic consumption value, but is required as a medium of exchange. A collection of such…
This paper will examine a model with many agents, each of whom has a different belief about the dynamics of a risky asset. The agents are Bayesian and so learn about the asset over time. All agents are assumed to have a finite (but random)…
We propose a set of conservative models in which agents exchange wealth with a preference in the choice of interacting agents in different ways. The common feature in all the models is that the temporary values of financial status of agents…
Using results from neurobiology on perceptual decision making and value-based decision making, the problem of decision making between lotteries is reformulated in an abstract space where uncertain prospects are mapped to corresponding…
We analyze the relative price change of assets starting from basic supply/demand considerations subject to arbitrary motivations. The resulting stochastic differential equation has coefficients that are functions of supply and demand. We…
Adaptive populations such as those in financial markets and distributed control can be modeled by the Minority Game. We consider how their dynamics depends on the agents' initial preferences of strategies, when the agents use linear or…
The recent explosion in the amount and dimensionality of data has exacerbated the need of trading off computational and statistical efficiency carefully, so that inference is both tractable and meaningful. We propose a framework that…
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 $Q_\gamma$…
The fundamental principle in Modern Portfolio Theory (MPT) is based on the quantification of the portfolio's risk related to performance. Although MPT has made huge impacts on the investment world and prompted the success and prevalence of…
Much of uncertainty quantification to date has focused on determining the effect of variables modeled probabilistically, and with a known distribution, on some physical or engineering system. We develop methods to obtain information on the…
We analyze and quantify, in a financial market with parameter uncertainty and for a Constant Relative Risk Aversion investor, the utility effects of two different boundedly rational (i.e., sub-optimal) investment strategies (namely, myopic…
One of the most celebrated results in mechanism design is Myerson's characterization of the revenue optimal auction for selling a single item. However, this result relies heavily on the assumption that buyers are indifferent to risk. In…
Operational risk is the risk relative to monetary losses caused by failures of bank internal processes due to heterogeneous causes. A dynamical model including both spontaneous generation of losses and generation via interactions between…
A speculative agent with Prospect Theory preference chooses the optimal time to purchase and then to sell an indivisible risky asset to maximize the expected utility of the round-trip profit net of transaction costs. The optimization…
In nature and human societies, the effects of homogeneous and heterogeneous characteristics on the evolution of collective behaviors are quite different from each other. It is of great importance to understand the underlying mechanisms of…
Systemic risk in banking systems remains a crucial issue that it has not been completely understood. In our toy model, banks are exposed to two sources of risks, namely, market risk from their investments in assets external to the banking…