Related papers: Risk aversion in financial decisions: A nonextensi…
In this paper the fractional trading ansatz of money management is reconsidered with special attention to chance and risk parts in the goal function of the related optimization problem. By changing the goal function with due regards to…
The growing adoption of large language models (LLMs) in finance exposes high-stakes decision-making to subtle, underexamined positional biases. The complexity and opacity of modern model architectures compound this risk. We present the…
A system for Operational Risk management based on the computational paradigm of Bayesian Networks is presented. The algorithm allows the construction of a Bayesian Network targeted for each bank using only internal loss data, and takes into…
We identify the structural impulse responses of quantiles of the outcome variable to a shock. Our estimation strategy explicitly distinguishes treatment from control variables, allowing us to model responses of unconditional quantiles while…
In this paper we consider stopping problems with partial observation under a general risk-sensitive optimization criterion for problems with finite and infinite time horizon. Our aim is to maximize the certainty equivalent of the stopping…
We present a cognitive model of opinion dynamics which studies the behavior of a population of interacting individuals in the context of risk of natural disaster. In particular, we investigate the response of the individuals to the…
This paper develops a model of reference-dependent assessment of subjective beliefs in which loss-averse people optimally choose the expectation as the reference point to balance the current felicity from the optimistic anticipation and the…
We consider the economic problem of optimal consumption and investment with power utility. We study the optimal strategy as the relative risk aversion tends to infinity or to one. The convergence of the optimal consumption is obtained for…
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…
The existence of asymmetric information has always been a major concern for financial institutions. Financial intermediaries such as commercial banks need to study the quality of potential borrowers in order to make their decision on…
Risk aggregation is a popular method used to estimate the sum of a collection of financial assets or events, where each asset or event is modelled as a random variable. Applications, in the financial services industry, include insurance,…
The distribution of money is analysed in connection with the Boltzmann distribution of energy in the degenerate states of molecules. Plots of the population density of income distribution for various countries are well reproduced by a Gamma…
This paper proposes a model of decision-making under uncertainty in which an agent is constrained in her cognitive ability to consider complex acts. We identify the complexity of an act according to the corresponding partition of state…
We study markets with no riskless (safe) asset. We derive the corresponding Black-Scholes-Merton option pricing equations for markets where there are only risky assets which have the following price dynamics: (i) continuous diffusions; (ii)…
An unified thermodynamical framework based in the use of a generalized Massieu-Planck thermodynamic potential is proposed and a new formulation of Boltzmann-Gibbs Statistical Mechanics is established. Under this philosophy a generalization…
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 aims of this study are twofold. First, we consider an optimal risk allocation problem with non-convex preferences. By establishing an infimal representation for distortion risk measures, we give some necessary and sufficient conditions…
We explore various extensions of Challet and Zhang's Minority Game in an attempt to gain insight into the dynamics underlying financial markets. First we consider a heterogeneous population where individual traders employ differing `time…
In behavioral finance, aversion affects investors' judgment of future uncertainty when profit and loss occur. Considering investors' aversion to loss and risk, and the ambiguous uncertainty characterizing asset returns, we construct a…
Regression plays a key role in many research areas and its variable selection is a classic and major problem. This study emphasizes cost of predictors to be purchased for future use, when we select a subset of them. Its economic aspect is…