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Non-implementability of Arrow-Debreu equilibria by continuous trading under knightian uncertainty

Riedel, Frank; Beißner, Patrick - 2014

only possible if all discounted net trades of the equilibrium allocation are mean ambiguity-free. …

Persistent link: https://www.econbiz.de/10010411561

Asset pricing and consumption-portfolio choice with recursive utility and unspanned risk

Kraft, Holger; Seiferling, Thomas; Seifried, Frank Thomas - 2014 - First version: March 6, 2014; this version: June 1, 2014

We study consumption-portfolio and asset pricing frameworks with recursive preferences and unspanned risk. We show that in both cases, portfolio choice and asset pricing, the value function of the investor/representative agent can be characterized by a specific semilinear partial differential...

Persistent link: https://www.econbiz.de/10010359861

Divergence and the price of uncertainty

Schneider, Paul; Trojani, Fabio - 2015 - This Version: November 23, 2015

Realized divergence gauges the distinct realized moments associated with time-varying uncertainty and is tradeable with divergence swaps engineered from delta-hedged option portfolios. Consistently with established notions of symmetry in arbitrage-free option markets, implied divergence...

Persistent link: https://www.econbiz.de/10011507861

The Bayesian Roots of Risk Parity in a Mean-Risk World

Kaya, Hakan - 2012

Risk parity has been considered a heuristic asset allocation method. In this paper, we show that, to the contrary, risk parity is a special case of a mean-risk type of a portfolio optimization problem with log-regularization to constrain weights. We show that log-regularization leads to a fund...

Persistent link: https://www.econbiz.de/10013103702

Risk Arbitrage Opportunities for Stock Index Options

Post, Thierry - 2019

To analyze the economic significance of pricing errors of stock index options, a system of linear inequalities is developed which completely characterizes all risk arbitrage opportunities which arise if a well-behaved pricing kernel does not exist. The Stochastic Arbitrage system can account for...

Persistent link: https://www.econbiz.de/10012899380

A Dual Characterisation of Regulatory Arbitrage for Coherent Risk Measures

Herdegen, Martin - 2020

We revisit mean-risk portfolio selection in a one-period financial market where risk is quantified by a positively homogeneous risk measure ρ on L1. We first show that under mild assumptions, the set of optimal portfolios for a fixed return is nonempty and compact. However, unlike in classical...

Persistent link: https://www.econbiz.de/10012823360

Kelly Criterion under Model Uncertainty

Xu, Yuhong - 2020

investment strategies indicate that a rational individual with ambiguity aversion reduces market participation when return and …

Persistent link: https://www.econbiz.de/10012825179

Real Options, Risk Aversion and Markets : A Corporate Finance Perspective

Ewald, Christian-Oliver - 2020

We analyze how the presence of financial markets effects the optimal exercise of real options for a risk averse agent. In this process we examine the role of the minimal martingale measure and the Capital Asset Pricing Model (CAPM). Using value-matching and smooth-pasting conditions, we...

Persistent link: https://www.econbiz.de/10012850828

Option-Based Pricing of Wrong Way Risk for CVA

Kenyon, Chris - 2016

The two main issues for managing wrong way risk (WWR) for the credit valuation adjustment (CVA, i.e. WW-CVA) are calibration and hedging. Hence we start from a novel model-free worst-case approach based on static hedging of counterparty exposure with liquid options. We say "start from" because...

Persistent link: https://www.econbiz.de/10012986205

Model Uncertainty, Ambiguity Premium and Optimal Asset Allocation

Xu, Yuhong - 2016

and subjective risk premium. I show that ambiguity aversion of a rational individual decreases her market participation … ambiguity premium and risk premium demonstrate that a decrease in ambiguity premium on volatility gives rise to an increase in … risk premium.Kelly criterion for the wealth process to reach a goal is also studied under such ambiguous market. Ambiguity …

Persistent link: https://www.econbiz.de/10012987227

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