Proposes new rule for ranking investment prospects over long horizons.
problem Ranking investment prospects over long horizons considering bounded risk aversion.
method Introduces asymptotic fractional-order stochastic dominance with bounded relative risk aversion.
result Establishes equivalent conditions for the new rule under lognormal returns without mean non-negativity constraint.
New model solves equity premium puzzle.
problem Equity premium puzzle regarding risk behavior of investors.
method Developed a new tool called the sufficiency factor to analyze risk behavior of investors.
result Validated the new model with a coefficient of relative risk aversion of 1.033526.
By analysing the restrictions that ensure the existence of capital market equilibrium, we show that the coefficient of relative risk aversion and the subjective discount factor cannot be high simultaneously as they are supposed to be to make the standard asset pricing consistent with financial stylised facts.
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 other risk measures like current drawdowns, the optimal fraction solutions reflect t…
New MFG model for MV portfolio management with peer-based risk aversion.
problem Time-inconsistent mean-variance portfolio management with peer-based risk aversion.
method Mean-field game, smooth regularization, fixed-point arguments, convergence analysis.
result Existence of mean-field equilibrium in time-inconsistent MFG.
We extend the theory of asymmetric information in mispricing models for stocks following geometric Brownian motion to constant relative risk averse investors. Mispricing follows a continuous mean--reverting Ornstein--Uhlenbeck process. Optimal portfolios and maximum expected log--linear utilities from terminal wealth f…
Derives a new formula for measuring risk aversion in markets.
problem Measuring the degree of risk aversion in markets accurately.
method Closed-form expression based on three variables: Treasury yields, returns, and market capitalization.
result Investors exhibit Decreasing Absolute Risk Aversion (DARA) but the degree of Relative Risk Aversion (RRA) varies.
Study shows priority access in ELA auctions is less valuable due to volatility risks.
problem Impact of volatility on time-based transaction ordering policies.
method Single-round model with risk-averse bidders, tested using ETH price data.
result Priority access is discounted due to volatility and risk aversion.
The paper explores how investors make decisions under disappointment aversion, finding that they prefer not to invest.
problem Continuous-time portfolio selection under generalized disappointment aversion.
method Sufficient and necessary condition for equilibrium strategies via fully nonlinear integral equation.
result Equilibrium strategy under disappointment aversion leads to less investment in the stock market compared to classical utility theory.
The paper analyzes investment and consumption strategies under uncertain market conditions.
problem Investment and consumption under drift and volatility uncertainties.
method Randomization approach to construct robust preferences and strategies.
result Developed optimal and robust investment and consumption strategies remain valid in the physical market.
Derives explicit investment strategy with random endowment.
problem Optimal investment with random endowment in a market.
method Duality arguments to derive explicit expression for optimal strategy.
result Explicit expression for optimal trading strategy exists.
New model solves equity premium puzzle with risk aversion coefficient.
problem Equity premium puzzle in financial markets.
method Developed a new model incorporating investor risk behavior, tested with specific coefficients.
result Validated model with empirical studies, confirming coefficient of 1.033526.
Study liquidity provision in decentralized exchanges considering risk aversion and replication costs.
problem Economic viability of liquidity provision in decentralized exchanges (DEXs).
method Formulated strategic interactions as a sequential game with risk-averse LP, traders, and arbitrageurs.
result DEX liquidity depth is crucial for risk management, influenced by risk aversion and replication costs.
The paper solves portfolio selection using Rényi divergence and optimization.
problem Single-period portfolio selection under CRRA utility.
method Information-theoretic lens, Rényi divergence, Rényi entropy, Blahut-Arimoto-style alternating optimization.
result CRRA portfolio selection is equivalent to a Rényi information-projection problem.
Study optimal portfolios for many players in a market model with random coefficients.
problem Optimal portfolio selection for many players under relative performance criteria in a market model with random coefficients.
method Game theory and stochastic optimal control, focusing on CARA and CRRA risk preferences, and extending to continuum of players.
result Existence of forward Nash equilibrium and mean field equilibrium for the n-agent game and corresponding mean field stochastic optimal control problem.
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 general semimartingale models while the convergence of the optimal trading strate…
Optimal risk sharing found for heterogeneous risk attitudes using distortion risk measures.
problem Risk sharing in economies with diverse risk attitudes.
method Modeling preferences with distortion risk measures, using comonotonic and counter-monotonic principles.
result Optimal risk sharing strategies identified based on risk attitudes, reducing the n-agent problem to a two-agent formulation. Develops risk-averse fair multi-class classification methods.
problem Noisy, scarce, unreliable data in multi-class classification problems.
method Systemic risk models and risk-averse regularized decomposition method.
result Enforces fairness and improves performance with unreliable data.
Solves equity premium puzzle with time-varying variables.
problem Equity premium puzzle.
method Consumption Capital Asset Pricing Model with time-varying subjective time discount factors.
result Calculated coefficient of relative risk aversion (CRRA) is around 4.40.
In this article we consider a special case of an optimal consumption/optimal portfolio problem first studied by Constantinides and Magill and by Davis and Norman, in which an agent with constant relative risk aversion seeks to maximise expected discounted utility of consumption over the infinite horizon, in a model com…
Modeling consumption and investment decisions with reference point and drawdown constraints.
problem Modeling consumption and investment decisions with reference point and drawdown constraints.
method Solving a stochastic control problem to derive value function, optimal consumption plan, and investment strategy in semi-explicit forms.
result Five important thresholds of wealth, all as functions of h, and significant economic implications. This note will extend the research presented in Brown & Rogers (2009) to the case of CRRA agents. We consider the model outlined in that paper in which agents had diverse beliefs about the dividends produced by a risky asset. We now assume that the agents all have CRRA utility, with some integer coefficient of relative…
MVPI framework optimizes risk in reinforcement learning, improving performance in robot simulations.
problem Optimizing risk in reinforcement learning control problems.
method Mean-Variance Policy Iteration (MVPI) framework for risk-averse control in MDPs.
result Risk-averse TD3 outperforms previous methods in robot simulation tasks.
A new measure quantifies how risk-averse different risk measures are.
problem Measuring the degree of risk aversion among different risk measures.
method Two axioms: normalization and linearity. Two formulas for the functional.
result Quantifies the degree of risk aversion among spectral risk measures.
There are two major streams of literature on the modeling of financial bubbles: the strict local martingale framework and the Johansen-Ledoit-Sornette (JLS) financial bubble model. Based on a class of models that embeds the JLS model and can exhibit strict local martingale behavior, we clarify the connection between th…
Solves the equity premium puzzle without calibrated values.
problem Equity premium puzzle in finance.
method Derived new model from 4 different equations, found subjective time discount factor and coefficient of relative risk aversion.
result Calculated values and risk attitude determination align with empirical literature.
Investigates how diversification preferences relate to risk attitudes.
problem Connecting diversification preferences to risk attitudes.
method Analyzes diversification preferences for various pairs of risks under different conditions.
result Diversification preferences for certain pairs of risks imply specific levels of risk aversion.
Different models of capital exchange among economic agents have been proposed recently trying to explain the emergence of Pareto's wealth power law distribution. One important factor to be considered is the existence of risk aversion. In this paper we study a model where agents posses different levels of risk aversion,…
Robo-advisors estimate clients' risk aversion using interactive questionnaires.
problem Estimating risk aversion of non-expert clients using adaptive questionnaires.
method Model risk aversion with cost functions and spectral risk measures. Use inverse reinforcement learning to design questions maximizing distinguishing power.
result Designing questions by maximizing distinguishing power achieves satisfactory accuracy in learning risk aversion with fewer than 50 questions.
The paper examines utility maximization in markets with hidden Gaussian drift, finding restrictions on model parameters.
problem Utility maximization problems in markets with hidden Gaussian drift mean-reverting processes.
method Derives sufficient conditions for bounded maximum expected utility of terminal wealth for models with full and partial information.
result Restrictions on model parameters for bounded maximum expected utility.
Different models to study the wealth distribution in an artificial society have considered a transactional dynamics as the driving force. Those models include a risk aversion factor, but also a finite probability of favoring the poorer agent in a transaction. Here we study the case where the partners in the transaction…
We consider a market consisting of one safe and one risky asset, which offer constant investment opportunities. Taking into account both proportional transaction costs and linear price impact, we derive optimal rebalancing policies for representative investors with constant relative risk aversion and a long horizon.
We investigate the ergodic problem of growth-rate maximization under a class of risk constraints in the context of incomplete, Itô-process models of financial markets with random ergodic coefficients. Including {\em value-at-risk} (VaR), {\em tail-value-at-risk} (TVaR), and {\em limited expected loss} (LEL), these cons…
Risk aversion is a key element of utility maximizing hedge strategies; however, it has typically been assigned an arbitrary value in the literature. This paper instead applies a GARCH-in-Mean (GARCH-M) model to estimate a time-varying measure of risk aversion that is based on the observed risk preferences of energy hed…
Modeling informed trading with risk-averse market makers.
problem Understanding informed trading and its impact on market liquidity and risk premia.
method Connections between optimal transport theory and Kyle's model, including new characterizations of profits and duality.
result Liquidity is lower, assets exhibit short-term reversals, and risk premia depend on market maker inventories, which are mean reverting.
An investor with constant relative risk aversion trades a safe and several risky assets with constant investment opportunities. For a small fixed transaction cost, levied on each trade regardless of its size, we explicitly determine the leading-order corrections to the frictionless value function and optimal policy.
Unified formula for optimal portfolio under piecewise hyperbolic risk aversion.
problem Optimizing portfolios with piecewise hyperbolic risk aversion utilities.
method Derive a unified closed-form formula for the optimal portfolio.
result Unified formula reflects risk aversion behaviors and risk-taking behaviors.
A new algorithm avoids worst-case outcomes in risky contexts.
problem Risk-averse behavior in contextual bandits is challenging.
method Developed a first risk-averse contextual bandit algorithm with online regret guarantees.
result First algorithm with an online regret guarantee for risk-averse contextual bandits.
Forward hedging reshapes incentive provision in firms.
problem How does forward hedging affect incentive provision in firms?
method We consider a CARA framework to jointly characterize optimal production, compensation, and static hedging in equilibrium.
result Delegation and external hedging are partial substitutes, and delegation can increase firm value even when the agent is more risk averse.
This paper characterizes the equilibrium in a continuous time financial market populated by heterogeneous agents who differ in their rate of relative risk aversion and face convex portfolio constraints. The model is studied in an application to margin constraints and found to match real world observations about financi…
Study risk-averse insider's behavior in dynamic signal asset pricing.
problem Analyzing risk-averse insider's dynamic signal in asset pricing.
method Employing a weak conditioning methodology to construct a Schrödinger bridge, deriving necessary conditions for equilibrium.
result Derive explicit closed-form solutions for important cases.
The standard asset pricing models (the CCAPM and the Epstein-Zin non-expected utility model) counterintuitively predict that equilibrium asset prices can rise if the representative agent's risk aversion increases. If the income effect, which implies enhanced saving as a result of an increase in risk aversion, dominates…
This paper studies the problem of optimal investment with CRRA (constant, relative risk aversion) preferences, subject to dynamic risk constraints on trading strategies. The market model considered is continuous in time and incomplete. the prices of financial assets are modeled by Itô processes. The dynamic risk constr…
Paper develops NPG for risk-averse RL with ECRMs, proving global convergence.
problem Ensuring reliable performance in stochastic RL problems with risk-averse policies.
method Developed natural policy gradient updates for ECRMs-based RL problems, proving global optimality and iteration complexity.
result Global convergence of risk-averse NPG algorithm with ECRMs.
Investor optimizes portfolio under dynamic risk preferences.
problem Optimizing investment under uncertain future risk attitudes.
method Developed a general equilibrium framework and solved for subgame-perfect equilibrium policies.
result Equilibrium policies include a novel hedging component to counteract anticipated risk aversion changes.
The paper examines how loss aversion impacts multi-armed bandit decisions over long periods.
problem The impact of loss aversion on multi-armed bandit decisions over long periods.
method A new central limit theorem for measures with history-dependent variances, derived under risk aversion in gains and risk loving in losses.
result Consequences of loss aversion for asymptotic properties are derived in analytical results.
New insights into risk aversion for complex decision models.
problem Understanding risk aversion in non-monotone decision models.
method Characterization of probabilistic risk aversion for generalized rank-dependent functions.
result Probabilistic risk aversion is determined by the distortion function, which is convex or scaled quantile-spread mixtures.
Spectral risk measures are attractive risk measures as they allow the user to obtain risk measures that reflect their risk-aversion functions. To date there has been very little guidance on the choice of risk-aversion functions underlying spectral risk measures. This paper addresses this issue by examining two popular …