This paper presents a novel approach to model selection and model averaging based on economic theory. We study model prediction in the form of a distributional opinion about a random variable X. We show how to test this prediction against alternative views. Different model opinions can be traded...

Traditional plain vanilla options can be regarded as options on a simple return. These options have convex payoffs and as a consequence of Jensen's inequality, their prices are increasing as a function of maturity in the absence of interest rate. This makes long dated call options as excessively...

This paper presents a novel approach to portfolio optimization based on perceived mean reversion in certain driftless markets, such as the foreign exchange spot market. This approach relies upon the likelihood ratio between the perceived and realized price distribution densities of the asset...