We study a worst-case scenario approach to the stochastic dynamic programming problem, presenting a general probability-based framework and some properties of the arising Bellman-Isaacs equation which allow to obtain a closed-form analytic solution. We also adapt the results for a discrete...

We study the continuous time portfolio selection problem over a finite horizon for an investor who maximizes the expected utility of terminal wealth and faces transaction costs. The portfolio consists of a risk-free asset, and a risky asset whose price is modeled as a geometric Brownian motion....

We develop scenario-based stochastic programming models for hedging the risks of international portfolios using options. The models provide an increasing level of integration in managing market and foreign exchange (FX) risks. We start with a single-stage model with currency options for...

A model captures a community consensus on a coherent field of knowledge, serving as a cumulative benchmark that can guide both research and application design, while also focusing efforts to extend or review it. Here we propose to develop this model for cognitive trading systems, computational...

This paper provides an exact and computable invariant currency value index (ICVI) which is independent of base currency choice. Thus, given a 1xed set of currencies, the index of a currency will have the same value, regardless of base currency choice. This currency index can be used as an...

We solve the problem of optimal inventory management for a CARA market-maker who faces proportional transaction costs and marking to market. Our model accommodates inventory shocks following an arbitrary compound Poisson process, and allows us to link the optimal policy to the moment-generating...

For pension-savers, a low payoff is a financial disaster. Such investors will most likely prefer left-skewed payoff distributions over right-skewed payoff distributions. We explore how such distributions can be delivered. Cautious-relaxed utility measures are cautious in ensuring that payoffs...

Households systematically overvalue or undervalue their houses. We compute house value misperception as the difference between self-reported and market house values. Misperception is sizable, countercyclical, and persistent. We find that a 1 percent increase in house overvaluation results, on...

We solve the problem of optimal risk management for an investor holding an illiquid, alpha generating fund and hedging his position with a liquid futures contract. When the investor is subject to a drawdown constraint, he is forced to reduce the total risk of his portfolio after a drawdown. In...