In several countries a major factor contributing to the current economic crisis was massive borrowing to fund investment projects on the basis of, in retrospect, grossly optimistic valuations. The purpose of this paper is to initiate an approach to project valuation and risk management in which...

In this article, we extend the Black-Litterman approach to a continuous time setting. We model analyst views jointly with asset prices to estimate the unobservable factors driving asset returns. The key in our approach is that the filtering problem and the stochastic control problem are...

In this paper, we use risk-sensitive control methods to solve a jump-diffusion Asset-Liability Management (ALM) problem. We show that the ALM problem admits a unique classical solution under two different sets of assumptions

This paper examines the effect of biased expert opinions on asset allocations. Expert opinions, such as brokerage research and analyst views, are an essential component of the asset management sector and an important research topic. However, the effect of behavioral biases on expert opinions is...

A new jump diffusion regime-switching model is introduced, which allows for linking jumps in asset prices with regime changes. We prove the existence and uniqueness of the solution to the risk-sensitive asset management criterion maximisation problem in this setting. We provide an ODE for the...

In this paper we estimate behavioural factors -- Keynes' 'animal spirits' -- in the property market. An enhanced Hidden Markov Model is used, for both the Shiller Home Price Index and a consumer confidence index. We conclude that both house prices and consumer confidence are driven by another...

In this paper, the authors describe a simple procedure for blending statistical estimates with expert opinions to produce a forward-looking view of the performance of assets. They discuss the impact of behavioural biases on the views and propose general modelling principles to biases. Standard...

This paper examines the effect of biased expert opinions on asset allocation. Expert opinions, such as brokerage research and analyst views, are an essential component of the asset management sector and an important research topic. However, the effect of behavioral biases on expert opinions is...

Stochastic optimisation has found a fertile ground for applications in finance. One of the greatest challenges remains to incorporate a set of scenarios that accurately models the behaviour of financial markets, and in particular their behaviour during crashes and crises, without sacrificing the...

This paper addresses errors in mean return estimates in continuous-time asset allocation models. A standard approach postulates that stochastic factors explain expected asset returns. The problem is then to estimate these factors from observed asset prices via filtering. Recent advances have...