This paper extends the notion of variance optimal hedging of contingent claims under the incomplete market setting to the hedging of entire processes, and applies the results to the problem of tracking stock indices. Sufficient conditions under which this is possible are given, along with the...

Volatility is essential to consider uncertainty surrounding investments in financial assets. For this reason, financial industry regulators, mutual fund managers, individual and institutional investors, and policymakers are concerned about volatility. Against this background, this paper...

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...

Current literature based on analyses of rural income volatility in China decompose poverty into chronic and transient components using longitudinal survey data and assesses the fraction of the Foster, Greer, and Thorbecke poverty gap attributable to mean income over time being below the poverty...

In this paper, we derive optimal hedging strategies for options in electricity futures markets. Optimality is measured in terms of minimal variance and the associated minimal variance hedging portfolios are obtained by a stochastic maximum principle. Our explicit results are particularly useful...

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 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...

In a panel survey of brokerage clients in the United Kingdom, participants mostly perceive their own portfolio as no more volatile than the market portfolio. Taking into account observed portfolio betas, this implies a belief in very low idiosyncratic portfolio volatility, which is even negative...

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...