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Risk-sensitive control has received considerable interest since the seminal work of Howard and Matheson [120] because of its ability to account for fluctuations about the mean, its connection with $H_\infty$ control, and its application to…
We investigate how the choice of decision makers can be varied under the presence of risk and uncertainty. Our analysis is based on the approach we have previously applied to individual decision makers, which we now generalize to the case…
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…
A dynamical price formation model for financial assets is presented. It aims to capture the essence of speculative trading where mispricings of assets are used to make profits. It is shown that together with the incorporation of the concept…
Reliable calculations of financial risk require that the fat-tailed nature of prices changes is included in risk measures. To this end, a non-Gaussian approach to financial risk management is presented, modeling the power-law tails of the…
To quantify the operational risk capital charge under the current regulatory framework for banking supervision, referred to as Basel II, many banks adopt the Loss Distribution Approach. There are many modeling issues that should be resolved…
Understanding how people form and revise their perception of risk is central to designing efficient risk communication methods, eliciting risk awareness, and avoiding unnecessary anxiety among the public. However, public responses to…
The Brain Drain phenomenon is particularly heterogeneous and is characterized by peculiar specifications. It influences the economic fundamentals of both the country of origin and the host one in terms of human capital accumulation. Here,…
This paper presents an optimal allocation problem in a financial market with one risk-free and one risky asset, when the market is driven by a stochastic market price of risk. We solve the problem in continuous time, for an investor with a…
This paper addresses the challenge of model uncertainty in quantitative finance, where decisions in portfolio allocation, derivative pricing, and risk management rely on estimating stochastic models from limited data. In practice, the…
This paper studies dynamic asset allocation with interest rate risk and several sources of ambiguity. The market consists of a risk-free asset, a zero-coupon bond (both determined by a Vasicek model), and a stock. There is ambiguity about…
We consider a Markov decision process subject to model uncertainty in a Bayesian framework, where we assume that the state process is observed but its law is unknown to the observer. In addition, while the state process and the controls are…
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)…
Price dynamics is analyzed in terms of a model which includes the possibility of effective forces due to trend followers or trend adverse strategies. The method is tested on the data of a minority-majority model and indeed it is capable of…
Following a Geometrical Brownian Motion extension into an Irrational Fractional Brownian Motion model, we re-examine agent behaviour reacting to time dependent news on the log-returns thereby modifying a financial market evolution. We…
There is no compelling reason imposing that the methods of statistical mechanics should be restricted to the dynamical systems which follow the usual Boltzmann-Gibbs prescriptions. More specifically, ubiquitous natural and artificial…
What is the dominating mechanism of the price dynamics in financial systems is of great interest to scientists. The problem whether and how volatilities affect the price movement draws much attention. Although many efforts have been made,…
We consider the problem of maximizing expected utility for a power investor who can allocate his wealth in a stock, a defaultable security, and a money market account. The dynamics of these security prices are governed by geometric Brownian…
Statistical inferential results generally come with a measure of reliability for decision-making purposes. For a policy implementer, the value of implementing published policy research depends critically upon this reliability. For a policy…
This paper is concerned with learning decision makers' preferences using data on observed choices from a finite set of risky alternatives. We propose a discrete choice model with unobserved heterogeneity in consideration sets and in…