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  • Certainty equivalent and utility indifference pricing for incomplete preferences via convex vector optimization
    Math. Finan. Econ. (IF 0.792) Pub Date : 2020-10-10
    Birgit Rudloff, Firdevs Ulus

    For incomplete preference relations that are represented by multiple priors and/or multiple—possibly multivariate—utility functions, we define a certainty equivalent as well as the utility indifference price bounds as set-valued functions of the claim. Furthermore, we motivate and introduce the notion of a weak and a strong certainty equivalent. We will show that our definitions contain as special

    更新日期:2020-10-11
  • An optimization model for minimizing systemic risk
    Math. Finan. Econ. (IF 0.792) Pub Date : 2020-09-12
    Rosella Castellano, Roy Cerqueti, Gian Paolo Clemente, Rosanna Grassi

    This paper proposes an optimal allocation model with the main aim to minimize systemic risk related to the sovereign risk of a set of countries. The reference methodological environment is that of complex networks theory. Specifically, we consider the weighted clustering coefficient as a proxy of systemic risk, while the interconnections among countries are captured by the relationships among default

    更新日期:2020-09-12
  • Preferences over rich sets of random variables: on the incompatibility of convexity and semicontinuity in measure
    Math. Finan. Econ. (IF 0.792) Pub Date : 2020-09-07
    Alexander Zimper, Hirbod Assa

    This paper considers a decision maker whose preferences are locally upper- or/and lower-semicontinuous in measure. We introduce the notion of a rich set which encompasses any standard vector space of random variables but also much smaller sets containing only random variables with at most two different outcomes in their support. Whenever preferences are complete on a rich set of random variables, lower-

    更新日期:2020-09-08
  • Equilibrium effects of intraday order-splitting benchmarks
    Math. Finan. Econ. (IF 0.792) Pub Date : 2020-09-04
    Jin Hyuk Choi, Kasper Larsen, Duane J. Seppi

    This paper presents a continuous-time model of intraday trading, pricing, and liquidity with dynamic TWAP and VWAP benchmarks. The model is solved in closed-form for the competitive equilibrium and also for non-price-taking equilibria. The intraday trajectories of TWAP trading targets cause predictable intraday patterns of price pressure, and randomness in VWAP target trajectories induces additional

    更新日期:2020-09-05
  • Optimal life-cycle consumption and investment decisions under age-dependent risk preferences
    Math. Finan. Econ. (IF 0.792) Pub Date : 2020-07-30
    Andreas Lichtenstern, Pavel V. Shevchenko, Rudi Zagst

    In this article we solve the problem of maximizing the expected utility of future consumption and terminal wealth to determine the optimal pension or life-cycle fund strategy for a cohort of pension fund investors. The setup is strongly related to a DC pension plan where additionally (individual) consumption is taken into account. The consumption rate is subject to a time-varying minimum level and

    更新日期:2020-07-30
  • Systemic credit freezes in financial lending networks
    Math. Finan. Econ. (IF 0.792) Pub Date : 2020-07-01
    Daron Acemoglu, Asuman Ozdaglar, James Siderius, Alireza Tahbaz-Salehi

    This paper develops a network model of interbank lending, in which banks decide to extend credit to their potential borrowers. Borrowers are subject to shocks that may force them to default on their loans. In contrast to much of the previous literature on financial networks, we focus on how anticipation of future defaults may result in ex ante “credit freezes,” whereby banks refuse to extend credit

    更新日期:2020-07-24
  • An integrated model for fire sales and default contagion
    Math. Finan. Econ. (IF 0.792) Pub Date : 2020-06-27
    Nils Detering, Thilo Meyer-Brandis, Konstantinos Panagiotou, Daniel Ritter

    Fire sales and default contagion are two of the main drivers of systemic risk in financial networks. While default contagion spreads via direct balance sheet exposures between institutions, fire sales describe iterated distressed selling of assets and their associated decline in price which impacts all institutions invested in these assets. That is, institutions are indirectly linked if they have overlapping

    更新日期:2020-07-24
  • Compound Poisson models for weighted networks with applications in finance
    Math. Finan. Econ. (IF 0.792) Pub Date : 2020-05-29
    Axel Gandy, Luitgard A. M. Veraart

    We develop a modelling framework for estimating and predicting weighted network data. The edge weights in weighted networks often arise from aggregating some individual relationships between the nodes. Motivated by this, we introduce a modelling framework for weighted networks based on the compound Poisson distribution. To allow for heterogeneity between the nodes, we use a regression approach for

    更新日期:2020-07-24
  • Capital allocation rules and acceptance sets
    Math. Finan. Econ. (IF 0.792) Pub Date : 2020-07-09
    Gabriele Canna; Francesca Centrone; Emanuela Rosazza Gianin

    This paper introduces a new approach to face capital allocation problems from the perspective of acceptance sets, by defining the family of sub-acceptance sets. We study the relations between the notions of sub-acceptability and acceptability of a risky position as well as their impact on the allocation of risk. We define the notion of risk contribution rule and show how in this context it is interpretable

    更新日期:2020-07-09
  • Continuity of utility maximization under weak convergence
    Math. Finan. Econ. (IF 0.792) Pub Date : 2020-07-08
    Erhan Bayraktar; Yan Dolinsky; Jia Guo

    In this paper we find tight sufficient conditions for the continuity of the value of the utility maximization problem from terminal wealth with respect to the convergence in distribution of the underlying processes. We also establish a weak convergence result for the terminal wealths of the optimal portfolios. Finally, we apply our results to the computation of the minimal expected shortfall (shortfall

    更新日期:2020-07-08
  • Properly discounted asset prices are semimartingales
    Math. Finan. Econ. (IF 0.792) Pub Date : 2020-06-11
    Dániel Ágoston Bálint; Martin Schweizer

    We study general undiscounted asset price processes, which are only assumed to be nonnegative, adapted and RCLL (but not a priori semimartingales). Traders are allowed to use simple (piecewise constant) strategies. We prove that under a discounting-invariant condition of absence of arbitrage, the original prices discounted by the value process of any simple strategy with positive wealth must follow

    更新日期:2020-06-11
  • Arbitrage-free modeling under Knightian uncertainty
    Math. Finan. Econ. (IF 0.792) Pub Date : 2020-06-09
    Matteo Burzoni; Marco Maggis

    We study the Fundamental Theorem of Asset Pricing for a general financial market under Knightian Uncertainty. We adopt a functional analytic approach which requires neither specific assumptions on the class of priors \(\mathcal {P}\) nor on the structure of the state space. Several aspects of modeling under Knightian Uncertainty are considered and analyzed. We show the need for a suitable adaptation

    更新日期:2020-06-09
  • Robust time-consistent mean–variance portfolio selection problem with multivariate stochastic volatility
    Math. Finan. Econ. (IF 0.792) Pub Date : 2020-06-08
    Tingjin Yan; Bingyan Han; Chi Seng Pun; Hoi Ying Wong

    This paper solves for the robust time-consistent mean–variance portfolio selection problem on multiple risky assets under a principle component stochastic volatility model. The model uncertainty is introduced to the drifts of the risky assets prices and the stochastic eigenvalues of the covariance matrix of asset returns. Using an extended dynamic programming approach, we manage to derive a semi-closed

    更新日期:2020-06-08
  • Mean-variance efficiency of optimal power and logarithmic utility portfolios
    Math. Finan. Econ. (IF 0.792) Pub Date : 2020-05-29
    Taras Bodnar; Dmytro Ivasiuk; Nestor Parolya; Wolfgang Schmid

    We derive new results related to the portfolio choice problem for power and logarithmic utilities. Assuming that the portfolio returns follow an approximate log-normal distribution, the closed-form expressions of the optimal portfolio weights are obtained for both utility functions. Moreover, we prove that both optimal portfolios belong to the set of mean-variance feasible portfolios and establish

    更新日期:2020-05-29
  • Asset pricing in a pure exchange economy with heterogeneous investors
    Math. Finan. Econ. (IF 0.792) Pub Date : 2020-05-29
    Xinfeng Ruan; Jin E. Zhang

    In this paper, we provide a complete solution to the problem of equilibrium asset pricing in a pure exchange economy with two types of heterogeneous investors having higher/lower risk aversion. Using a perturbation method, we obtain analytical approximate formulas for the optimal consumption-sharing rule, which is numerically justified to be accurate for a large risk aversion and heterogeneity. We

    更新日期:2020-05-29
  • No–arbitrage commodity option pricing with market manipulation
    Math. Finan. Econ. (IF 0.792) Pub Date : 2020-04-02
    René Aïd; Giorgia Callegaro; Luciano Campi

    We design three continuous-time models in finite horizon of a commodity price, whose dynamics can be affected by the actions of a representative risk-neutral producer and a representative risk-neutral trader. Depending on the model, the producer can control the drift and/or the volatility of the price whereas the trader can at most affect the volatility. The producer can affect the volatility in two

    更新日期:2020-04-02
  • No arbitrage in continuous financial markets
    Math. Finan. Econ. (IF 0.792) Pub Date : 2020-03-14
    David Criens

    We derive integral tests for the existence and absence of arbitrage in a financial market with one risky asset which is either modeled as stochastic exponential of an Itô process or a positive diffusion with Markov switching. In particular, we derive conditions for the existence of the minimal martingale measure. We also show that for Markov switching models the minimal martingale measure preserves

    更新日期:2020-03-14
  • Consumption and portfolio decisions with uncertain lifetimes
    Math. Finan. Econ. (IF 0.792) Pub Date : 2020-03-13
    Shou Chen; Richard Fu; Lei Wedge; Ziran Zou

    We study the consumption and portfolio decisions by incorporating mortality risk and altruistic factor in the classical model of Merton (Rev Econ Stat 51:247–257, 1969; J Econ Theory 3:373–413, 1971) and Yaari (Rev Econ Stud 32(2):137–150, 1965). We find that besides the present-biased preference, the process of updating mortality information may be another underlying cause of dynamically time-inconsistent

    更新日期:2020-03-13
  • A generalized stochastic differential utility driven by G -Brownian motion
    Math. Finan. Econ. (IF 0.792) Pub Date : 2020-03-12
    Qian Lin; Dejian Tian; Weidong Tian

    This paper introduces a class of generalized stochastic differential utility (GSDU) models in a continuous-time framework to capture ambiguity aversion on the financial market. This class of GSDU models encompasses several classical approaches to ambiguity aversion and includes new models about ambiguity aversion. For a general GSDU model, we demonstrate its continuity, monotonicity, time consistency

    更新日期:2020-03-12
  • How safe are central counterparties in credit default swap markets?
    Math. Finan. Econ. (IF 0.792) Pub Date : 2020-03-09
    Mark Paddrik, H. Peyton Young

    We propose a general framework for estimating the vulnerability to default by a central counterparty (CCP) in the credit default swaps market. Unlike conventional stress testing approaches, which estimate the ability of a CCP to withstand nonpayment by its two largest counterparties, we study the direct and indirect effects of nonpayment by members and/or their clients through the full network of exposures

    更新日期:2020-03-09
  • On the dynamic representation of some time-inconsistent risk measures in a Brownian filtration
    Math. Finan. Econ. (IF 0.792) Pub Date : 2020-02-24
    Julio Backhoff-Veraguas; Ludovic Tangpi

    It is well-known from the work of Kupper and Schachermayer that most law-invariant risk measures are not time-consistent, and thus do not admit dynamic representations as backward stochastic differential equations. In this work we show that in a Brownian filtration the “Optimized Certainty Equivalent” risk measures of Ben-Tal and Teboulle can be computed through PDE techniques, i.e. dynamically. This

    更新日期:2020-02-24
  • Consumption-investment optimization problem in a Lévy financial model with transaction costs and làdlàg strategies
    Math. Finan. Econ. (IF 0.792) Pub Date : 2020-02-17
    E. Lepinette; T. Q. Tran

    We consider the consumption-investment optimization problem for the financial market model with constant proportional transaction rates and Lévy price process dynamics. Contrarily to the recent work of De Vallière (Financ Stoch 20:705–740, 2016), portfolio process trajectories are only left and right limited. This allows us to identify an optimal làdlàg strategy, e.g. in the two dimensional case, as

    更新日期:2020-02-17
  • Optimal retirement and portfolio selection with consumption ratcheting
    Math. Finan. Econ. (IF 0.792) Pub Date : 2020-02-05
    Junkee Jeon; Kyunghyun Park

    The purpose of this paper is to study the optimal retirement and consumption/investment decisions of an infinitely lived agent who does not tolerate any decline in his/her consumption throughout his/her lifetime. The agent receives labor income but suffers disutility from working until retirement. The agent’s optimization problem combines features of both singular control and optimal stopping. We use

    更新日期:2020-02-05
  • Von Neumann–Gale dynamics and capital growth in financial markets with frictions
    Math. Finan. Econ. (IF 0.792) Pub Date : 2020-01-21
    Esmaeil Babaei; Igor V. Evstigneev; Klaus Reiner Schenk-Hoppé; Mikhail Zhitlukhin

    The aim of this work is to extend the classical theory of growth-optimal investments (Shannon, Kelly, Breiman, Algoet, Cover and others) to models of asset markets with frictions—transaction costs and portfolio constraints. As the modelling framework, we use discrete-time dynamical systems generated by convex homogeneous multivalued operators in spaces of random vectors—von Neumann–Gale dynamical systems

    更新日期:2020-01-21
  • Short maturity conditional Asian options in local volatility models
    Math. Finan. Econ. (IF 0.792) Pub Date : 2020-01-18
    Nian Yao; Zhichao Ling; Jieyu Zhang; Mingqing Xiao

    In this paper, we study the option pricing problem for the conditional Asian option that appears as a recent market product, offering a cheaper and new alternative to the regular Asian option. We develop the new characteristics of short-maturity asymptotic for the prices of the conditional Asian option provided that the underlying asset follows a local volatility model. The asymptotics for out-of-the-money

    更新日期:2020-01-18
  • On the firm’s option values of short-time work policies
    Math. Finan. Econ. (IF 0.792) Pub Date : 2020-01-18
    Kuno J. M. Huisman; Jacco J. J. Thijssen

    We analyse the short-time work (STW) regulations that several OECD countries introduced after the 2007 financial crisis. We view these measures as a collection of real options and study the dynamic effect of STW on the endogenous liquidation decision of the firm. While STW delays a firm’s liquidation, it is not necessarily welfare enhancing. Moreover, it turns out that firms use STW too long. We show

    更新日期:2020-01-18
  • Game theoretic valuation of deposit insurance under jump risk: from too small to survive to too big to fail
    Math. Finan. Econ. (IF 0.792) Pub Date : 2020-01-10
    Tat Wing Wong

    This study examines the valuation problem in deposit insurance as a game option between the deposit insurer and the insured bank with asymmetric bankruptcy costs. The asset-to-deposit ratio of the insured bank is modeled as an exponential Lévy process with a spectrally negative jump. The study examines a wide range of scenarios in which the optimal closure policies of both parties are fully characterized

    更新日期:2020-01-10
  • Many-player games of optimal consumption and investment under relative performance criteria
    Math. Finan. Econ. (IF 0.792) Pub Date : 2020-01-02
    Daniel Lacker; Agathe Soret

    We study a portfolio optimization problem for competitive agents with CRRA utilities and a common finite time horizon. The utility of an agent depends not only on her absolute wealth and consumption but also on her relative wealth and consumption when compared to the averages among the other agents. We derive a closed form solution for the n-player game and the corresponding mean field game. This solution

    更新日期:2020-01-02
  • Nash equilibrium strategies and survival portfolio rules in evolutionary models of asset markets
    Math. Finan. Econ. (IF 0.792) Pub Date : 2020-01-01
    Sergei Belkov; Igor V. Evstigneev; Thorsten Hens; Le Xu

    We consider a stochastic model of a financial market with one-period assets and endogenous asset prices. The model was initially developed and analyzed in the context of Evolutionary Finance with the main focus on questions of “survival and extinction” of investment strategies (portfolio rules). In this paper we view the model from a different, game-theoretic, perspective and analyze Nash equilibrium

    更新日期:2020-01-01
  • On the probability of default in a market with price clustering and jump risk
    Math. Finan. Econ. (IF 0.792) Pub Date : 2020-01-01
    Shiyu Song; Yongjin Wang; Guangli Xu

    In this paper, we consider the probability of default for financial variables under a tractable stochastic model which can capture both the price clustering phenomenon and the jump risk. We assume that the logarithm of the price dynamics is driven by a so-called sticky double exponential jump diffusion process. In particular, the price clustering is incorporated by time changing the jump diffusion

    更新日期:2020-01-01
  • The learning premium
    Math. Finan. Econ. (IF 0.792) Pub Date : 2019-11-29
    Maxim Bichuch; Paolo Guasoni

    We find equilibrium stock prices and interest rates in a representative-agent model where dividend growth is uncertain, but gradually revealed by dividends themselves, while asset prices reflect current information and the potential impact of future knowledge. In addition to the usual premium for risk, stock returns include a learning premium, which reflects the expected change in prices from new information

    更新日期:2019-11-29
  • Quantile hedging in models with dividends and application to equity-linked life insurance contracts
    Math. Finan. Econ. (IF 0.792) Pub Date : 2019-11-25
    Anna Glazyrina; Alexander Melnikov

    The paper demonstrates the effect of the dividends on pricing and hedging the European contingent claims under a budget constraint and presents insurance applications. Explicit formulae for the quantile pricing and hedging of the European call option are derived assuming the jump-diffusion model of the financial market. These results are used to determine the premium of the pure endowment with fixed

    更新日期:2019-11-25
  • Dual representations for systemic risk measures
    Math. Finan. Econ. (IF 0.792) Pub Date : 2019-11-05
    Çağın Ararat; Birgit Rudloff

    The financial crisis showed the importance of measuring, allocating and regulating systemic risk. Recently, the systemic risk measures that can be decomposed into an aggregation function and a scalar measure of risk, received a lot of attention. In this framework, capital allocations are added after aggregation and can represent bailout costs. More recently, a framework has been introduced, where institutions

    更新日期:2019-11-05
  • Managing inventory with proportional transaction costs
    Math. Finan. Econ. (IF 0.792) Pub Date : 2019-09-11
    Florent Gallien; Serge Kassibrakis; Semyon Malamud

    We solve the problem of optimal inventory management for a CARA market-maker who faces proportional transaction costs and marking to market. Our model accommodates inventory shocks following an arbitrary compound Poisson process. We show that the no-trading region is always wider in the presence of inventory shocks.

    更新日期:2019-09-11
  • Optimal portfolio choice: a minimum expected loss approach
    Math. Finan. Econ. (IF 0.792) Pub Date : 2019-09-07
    Andrés Ramírez-Hassan; Rosember Guerra-Urzola

    The mainstream in finance tackles portfolio selection based on a plug-in approach without consideration of the main objective of the inferential situation. We propose minimum expected loss (MELO) estimators for portfolio selection that explicitly consider the trading rule of interest. The asymptotic properties of our MELO proposal are similar to the plug-in approach. Nevertheless, simulation exercises

    更新日期:2019-09-07
  • Fractional risk process in insurance
    Math. Finan. Econ. (IF 0.792) Pub Date : 2019-06-15
    Arun Kumar; Nikolai Leonenko; Alois Pichler

    The Poisson process suitably models the time of successive events and thus has numerous applications in statistics, in economics, it is also fundamental in queueing theory. Economic applications include trading and nowadays particularly high frequency trading. Of outstanding importance are applications in insurance, where arrival times of successive claims are of vital importance. It turns out, however

    更新日期:2019-06-15
  • A regime switching model for temperature modeling and applications to weather derivatives pricing
    Math. Finan. Econ. (IF 0.792) Pub Date : 2019-05-16
    Aysun Türkvatan; Azize Hayfavi; Tolga Omay

    In this study, we propose a regime-switching model for temperature dynamics, where the parameters depend on a Markov chain. We improve upon the traditional models by modeling jumps in temperature dynamics via the chain itself. Moreover, we compare the performance of the proposed model with the existing models. The results indicate that the proposed model outperforms in the short time forecast horizon

    更新日期:2019-05-16
  • Portfolio choice, portfolio liquidation, and portfolio transition under drift uncertainty
    Math. Finan. Econ. (IF 0.792) Pub Date : 2019-04-04
    Alexis Bismuth; Olivier Guéant; Jiang Pu

    This paper presents several models addressing optimal portfolio choice, optimal portfolio liquidation, and optimal portfolio transition issues, in which the expected returns of risky assets are unknown. Our approach is based on a coupling between Bayesian learning and dynamic programming techniques that leads to partial differential equations. It enables to recover the well-known results of Karatzas

    更新日期:2019-04-04
  • Golden options in financial mathematics
    Math. Finan. Econ. (IF 0.792) Pub Date : 2019-03-13
    Alejandro Balbás; Beatriz Balbás; Raquel Balbás

    This paper deals with the construction of “smooth good deals” (SGD), i.e., sequences of self-financing strategies whose global risk diverges to minus infinity and such that every security in every strategy of the sequence is a “smooth” derivative with a bounded delta. Since delta is bounded, digital options are excluded. In fact, the pay-off of every option in the sequence is continuos (and therefore

    更新日期:2019-03-13
  • Consumption–investment problem with pathwise ambiguity under logarithmic utility
    Math. Finan. Econ. (IF 0.792) Pub Date : 2019-03-07
    Zongxia Liang; Ming Ma

    For an investor with intertemporal information about risky assets, we propose a set of càdlàg confidence paths to describe his ambiguity about drift, volatility, and jump of the risky assets. For each possible model, the differential characteristic of log-return processes is a stochastic process and almost surely takes value in the set of confidence paths. Under the framework of the robust consumption–investment

    更新日期:2019-03-07
  • Irreversible investment with fixed adjustment costs: a stochastic impulse control approach
    Math. Finan. Econ. (IF 0.792) Pub Date : 2019-02-28
    Salvatore Federico; Mauro Rosestolato; Elisa Tacconi

    We consider an optimal stochastic impulse control problem over an infinite time horizon motivated by a model of irreversible investment choices with fixed adjustment costs. By employing techniques of viscosity solutions and relying on semiconvexity arguments, we prove that the value function is a classical solution to the associated quasi-variational inequality. This enables us to characterize the

    更新日期:2019-02-28
  • Impact of contingent payments on systemic risk in financial networks
    Math. Finan. Econ. (IF 0.792) Pub Date : 2019-02-18
    Tathagata Banerjee; Zachary Feinstein

    In this paper we study the implications of contingent payments on the clearing wealth in a network model of financial contagion. We consider an extension of the Eisenberg–Noe financial contagion model in which the nominal interbank obligations depend on the wealth of the firms in the network. We first consider the problem in a static framework and develop conditions for existence and uniqueness of

    更新日期:2019-02-18
  • Mean-reverting additive energy forward curves in a Heath–Jarrow–Morton framework
    Math. Finan. Econ. (IF 0.792) Pub Date : 2019-02-13
    Fred Espen Benth; Marco Piccirilli; Tiziano Vargiolu

    In this paper, we make the traditional modeling approach of energy commodity forwards consistent with no-arbitrage. In fact, traditionally energy prices are modeled as mean-reverting processes under the real-world probability measure \(\mathbb {P}\), which is in apparent contradiction with the fact that they should be martingales under a risk-neutral measure \(\mathbb {Q}\). The key point here is that

    更新日期:2019-02-13
  • A macroscopic portfolio model: from rational agents to bounded rationality
    Math. Finan. Econ. (IF 0.792) Pub Date : 2019-01-29
    Torsten Trimborn

    We introduce a microscopic model of interacting financial agents, where each agent is characterized by two portfolios; money invested in bonds and money invested in stocks. Furthermore, each agent is faced with an optimization problem in order to determine the optimal asset allocation. Thus, we consider a differential game since all agents aim to invest optimal and we introduce the concept of Nash

    更新日期:2019-01-29
  • A switching microstructure model for stock prices
    Math. Finan. Econ. (IF 0.792) Pub Date : 2019-01-08
    Donatien Hainaut; Stephane Goutte

    This article proposes a microstructure model for stock prices in which parameters are modulated by a Markov chain determining the market behaviour. In this approach, called the switching microstructure model (SMM), the stock price is the result of the balance between the supply and the demand for shares. The arrivals of bid and ask orders are represented by two mutually- and self-excited processes

    更新日期:2019-01-08
  • Bubbles in assets with finite life
    Math. Finan. Econ. (IF 0.792) Pub Date : 2019-01-01
    Henri Berestycki; Cameron Bruggeman; Regis Monneau; José A. Scheinkman

    We study the speculative value of a finitely lived asset when investors disagree and short sales are limited. In this case, investors are willing to pay a speculative value for the resale option they obtain when they acquire the asset. Using martingale arguments, we characterize the equilibrium speculative value as a solution to a fixed point problem for a monotone operator \(\mathbb F\). A Dynamic

    更新日期:2019-01-01
  • Constrained portfolio-consumption strategies with uncertain parameters and borrowing costs
    Math. Finan. Econ. (IF 0.792) Pub Date : 2018-12-26
    Zhou Yang; Gechun Liang; Chao Zhou

    This paper studies the properties of the optimal portfolio-consumption strategies in a finite horizon robust utility maximization framework with different borrowing and lending rates. In particular, we allow for constraints on both investment and consumption strategies, and model uncertainty on both drift and volatility. With the help of explicit solutions, we quantify the impacts of uncertain market

    更新日期:2018-12-26
  • Minskyan classical growth cycles: stability analysis of a stock-flow consistent macrodynamic model
    Math. Finan. Econ. (IF 0.792) Pub Date : 2018-11-24
    Daniel Bastidas; Adrien Fabre; Florent Mc Isaac

    This paper follows van der Ploeg (Metroeconomica 37(2):221–230, 1985)’s research program in testing both its extension of Goodwin (in: Feinstein (ed) Socialism, capitalism and economic growth, Cambridge University Press, Cambridge, 4, 54–58, 1967) predator–prey model and the Minsky Financial Instability Hypothesis (FIH) proposed by Keen (J Post Keynes Econ 17(4):607–635, 1995). By endowing the production

    更新日期:2018-11-24
  • How local in time is the no-arbitrage property under capital gains taxes?
    Math. Finan. Econ. (IF 0.792) Pub Date : 2018-10-11
    Christoph Kühn

    In frictionless financial markets, no-arbitrage is a local property in time. This means that a discrete time model is arbitrage-free if and only if there does not exist a one-period-arbitrage. With capital gains taxes, this equivalence fails. For a model with a linear tax and one non-shortable risky stock, we introduce the concept of robust local no-arbitrage (RLNA) as the weakest local condition which

    更新日期:2018-10-11
  • Characterizations of risk aversion in cumulative prospect theory
    Math. Finan. Econ. (IF 0.792) Pub Date : 2018-10-05
    Tiantian Mao; Fan Yang

    In this paper, we investigate the necessary and sufficient conditions for a decision maker to be monotone risk averse and left-monotone risk averse, respectively, in cumulative prospect theory (CPT). Our results show that the decision maker is more pessimistic than greedy if she is either monotone or left-monotone risk averse, which is similar to that of Chateauneuf et al. (Econ Theory 25(3):649–667

    更新日期:2018-10-05
  • Increasing risk aversion and life-cycle investing
    Math. Finan. Econ. (IF 0.792) Pub Date : 2018-09-18
    Kerry Back; Ruomeng Liu; Alberto Teguia

    We derive the optimal portfolio for an investor with increasing relative risk aversion in a complete continuous-time securities market. The IRRA assumption helps to mitigate the criticism of constant relative risk aversion that it implies an unreasonably large aversion to large gambles, given reasonable aversion to small gambles. The model provides theoretical support for the common recommendation

    更新日期:2018-09-18
  • Optimal investment with random endowments and transaction costs: duality theory and shadow prices
    Math. Finan. Econ. (IF 0.792) Pub Date : 2018-09-01
    Erhan Bayraktar; Xiang Yu

    This paper studies the utility maximization on the terminal wealth with random endowments and proportional transaction costs. To deal with unbounded random payoffs from some illiquid claims, we propose to work with the acceptable portfolios defined via the consistent price system such that the liquidation value processes stay above some stochastic thresholds. In the market consisting of one riskless

    更新日期:2018-09-01
  • Turnpike property and convergence rate for an investment and consumption model
    Math. Finan. Econ. (IF 0.792) Pub Date : 2018-08-24
    Baojun Bian; Harry Zheng

    We discuss the turnpike property for optimal investment and consumption problems. We find there exists a threshold value that determines the turnpike property for investment policy. The threshold value only depends on the Sharpe ratio, the riskless interest rate and the discount rate. We show that if utilities behave asymptotically like power utilities and satisfy some simple relations with the threshold

    更新日期:2018-08-24
  • Barndorff-Nielsen and Shephard model: oil hedging with variance swap and option
    Math. Finan. Econ. (IF 0.792) Pub Date : 2018-08-16
    Indranil SenGupta; William Wilson; William Nganje

    In this paper the Barndorff-Nielsen and Shephard (BN-S) model is implemented to find an optimal hedging strategy for the oil commodity from the Bakken, a new region of oil extraction that is benefiting from fracking technology. The model is analyzed in connection to the quadratic hedging problem and some related analytical results are developed. The results indicate that oil can be optimally hedged

    更新日期:2018-08-16
  • Cointegration in continuous time for factor models
    Math. Finan. Econ. (IF 0.792) Pub Date : 2018-08-10
    Fred Espen Benth; Andre Süss

    We develop cointegration for multivariate continuous-time stochastic processes, both in finite and infinite dimension. Our definition and analysis are based on factor processes and operators mapping to the space of prices and cointegration. The focus is on commodity markets, where both spot and forward prices are analysed in the context of cointegration. We provide many examples which include the most

    更新日期:2018-08-10
  • Borrowing constraints, effective flexibility in labor supply, and portfolio selection
    Math. Finan. Econ. (IF 0.792) Pub Date : 2018-07-30
    Ho-Seok Lee; Gyoocheol Shim; Yong Hyun Shin

    We study optimal job switching and consumption/investment policies of an economic agent under the borrowing constraints against future labor income in a continuous and infinite time horizon. The agent’s preference is given by the Cobb–Douglas utility function whose arguments are consumption and leisure, and the jobs are characterized by the trade-off between labor income and leisure. We obtain a closed-form

    更新日期:2018-07-30
  • Capital asset market equilibrium with liquidity risk, portfolio constraints, and asset price bubbles
    Math. Finan. Econ. (IF 0.792) Pub Date : 2018-07-25
    Robert Jarrow

    This paper derives an equilibrium asset pricing model with endogenous liquidity risk, portfolio constraints, and asset price bubbles. Liquidity risk is modeled as a stochastic quantity impact on the price from trading, where the size of the impact depends on trade size. Asset price bubbles are generated by the existence of portfolio constraints, e.g. short sale prohibitions and margin requirements

    更新日期:2018-07-25
  • Optimal credit investment and risk control for an insurer with regime-switching
    Math. Finan. Econ. (IF 0.792) Pub Date : 2018-07-23
    Lijun Bo; Huafu Liao; Yongjin Wang

    This paper studies an optimal investment and risk control problem for an insurer with default contagion and regime-switching. The insurer in our model allocates his/her wealth across multi-name defaultable stocks and a riskless bond under regime-switching risk. Default events have an impact on the distress state of the surviving stocks in the portfolio. The aim of the insurer is to maximize the expected

    更新日期:2018-07-23
  • The financial market: not as big as you think
    Math. Finan. Econ. (IF 0.792) Pub Date : 2018-07-17
    Weidong Tian

    In a general multiperiod financial market, we show that the market trading prices at intermediate dates of some securities with simple specifications, either compound call option or portfolios of index options, reveal sufficient information from the terminal date to intermediate dates; therefore, these simple securities dynamically span and complete the entire space of all state-contingent claims.

    更新日期:2018-07-17
  • Nonlinear equity valuation using conic finance and its regulatory implications
    Math. Finan. Econ. (IF 0.792) Pub Date : 2018-07-03
    Dilip B. Madan

    Economic enterprises are modeled to have the return distributions of pure jump limit laws. Specifically the four parameters of a bilateral gamma process synthesize the up and down moves in returns with differing mean and variance rates for the two motions. Prudential capital assessments value a distant terminal payout defined by the accumulated returns. The valuation incorporates risk charges based

    更新日期:2018-07-03
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