We consider dynamic sublinear expectations (i.e., time-consistent coherent risk measures) whose scenario sets consist of singular measures corresponding to a general form of volatility uncertainty. We derive a càdlàg nonlinear martingale which is also the value process of a superhedging...

I study the effects of risk and ambiguity (Knightian uncertainty) on optimal portfolios and equilibrium asset prices when investors receive information that is difficult to link to fundamentals. I show that the desire of investors to hedge ambiguity leads to portfolio inertia and excess...

We show that the hedging benefit of owning a home reduces the variability of housing consumption after a move. When a current home owner's house price covaries positively with housing costs in a future city, changes in the future cost of housing are offset by commensurate changes in wealth...

With model uncertainty characterized by a convex, possibly non-dominated set of probability measures, the investor minimizes the cost of hedging a path dependent contingent claim with given expected success ratio, in a discrete-time, semi-static market of stocks and options. Based on duality...

Many electricity markets exhibit an oligopolistic structure with market participants whose individual trading activities may shift prices essentially. In this context, the question of how to optimally liquidate an existing electricity futures portfolio over a fixed time horizon under the...

This paper investigates forecasts of long-term volatility for the fast-growing field of long-short factor strategies in an extensive in- and out-of-sample framework. More in detail, the study follows previous authors by empirically comparing various forecast configurations to provide guidance to...

Does performance volatility enable organizations to increase their rank relative to their rivals? While prior research has argued that rankings are derived from organizations’ realized (past) performance, under quality uncertainty, volatility could also confer advantages for increasing rank....

I introduce novel preference formulations which capture aversion to ambiguity about unknown and potentially time-varying volatility. I compare these preferences with Gilboa and Schmeidler’s maxmin expected utility as well as variational formulations of ambiguity aversion. The impact of...

March 2020 packed 2 ½ years of normal U.S. stock market volatility into one month, making it the most volatile month on record. Daily variability clocked in at 6%, six times higher than the average over the past 90 years. How should an investor respond to such volatility? In this article we...

We use the Bayesian method introduced by Gallant and McCulloch (2009) to estimate consumption-based asset pricing models featuring smooth ambiguity preferences. We rely on semi-nonparametric estimation of a flexible auxiliary model in our structural estimation. Based on the market and aggregate...