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models featuring smooth ambiguity preferences. We rely on semi-nonparametric estimation of a flexible auxiliary model in our … pricing models with smooth ambiguity. Statistical model comparison shows that models with ambiguity, learning and time …
Persistent link: https://www.econbiz.de/10011780610
Heterogeneous beliefs among market participants can lead to questionable speculative trading that goes beyond any risk-sharing motives. We demonstrate that such unwarranted betting behavior in market equilibrium can be mitigated by introducing nonlinear pricing for ambiguous contracts, without...
Persistent link: https://www.econbiz.de/10015272951
We consider the strategic interaction of traders in a continuous-time financial market with Epstein-Zin-type recursive intertemporal preferences and performance concerns. We derive explicitly an equilibrium for the finite player and the mean-field version of the game, based on a study of...
Persistent link: https://www.econbiz.de/10014473535
We establish a convergence theorem that shows that discrete-time recursive utility, as developed by Kreps and Porteus (1978), converges to stochastic differential utility, as introduced by Duffie and Epstein (1992), in the continuous-time limit of vanishing grid size.
Persistent link: https://www.econbiz.de/10010225872
Theoretical concepts together with estimation and optimization methods for portfolio choice based on Stochastic Dominance are reviewed. Distinction is drawn between the concepts of Pairwise Dominance, Admissibility, Optimality, Efficiency and Spanning. Results of selected empirical studies and...
Persistent link: https://www.econbiz.de/10014122671
I investigate a dynamic life-cycle strategic asset allocation and consumption problem under model uncertainty, where both inflation rate and income growth rate are assumed to be estimated with errors. I present a feasible boundary for the uncertainty aversion parameter, which measures the...
Persistent link: https://www.econbiz.de/10012997223
This paper deals with risk measurement and portfolio optimization under risk constraints. Firstly we give an overview of risk assessment from the viewpoint of risk theory, focusing on moment-based, distortion and spectral risk measures. We subsequently apply these ideas to an asset management...
Persistent link: https://www.econbiz.de/10012997402
I introduce a method of portfolio selection based on the idea that investment risk is not having enough wealth when you need it. Not having enough wealth translates into a required return. When you need wealth translates into an investment horizon. These two ingredients, when combined with...
Persistent link: https://www.econbiz.de/10012967761
Dynamic retirement glidepaths evolve over time based on some measure such as the retiree's funded status or current market valuations. Conversely, static glidepaths are fixed at a starting point and selected under the assumption that they will not change. In practice, new static glidepaths may...
Persistent link: https://www.econbiz.de/10013020228
We consider an investor who faces parameter uncertainty in a continuous-time financial market. We model the investor's preference by a power utility function leading to constant relative risk aversion. We show that the loss in expected utility is large when using a simple plug-in strategy for...
Persistent link: https://www.econbiz.de/10013033022