This paper provides a microfounded information acquisition technology based on a simple framework with information search. When searchable information is limited, an agent encounters increasingly more redundant information in his search for new information. Redundancy slows down the learning...

Robust portfolios resolve the sensitivity issue identified as a concern in implementing mean–variance analysis. Because robust approaches are not widely used in practice due to a limited understanding regarding the portfolios constructed from these methods, we present an analysis of the...

We study the existence and uniqueness of minimal supersolutions of backward stochastic differential equations with generators that are jointly lower semicontinuous, bounded below by an affine function of the control variable and satisfy a specific normalization property.

We aim to compare financial technical analysis techniques to strategies which depend on a mathematical model. In this paper, we consider the moving average indicator and an investor using a risky asset whose instantaneous rate of return changes at an unknown random time. We construct...

This paper studies option pricing based on a reverse engineering (RE) approach. We utilize artificial intelligence in order to numerically compute the prices of options. The data consist of more than 5000 call- and put-options from the German stock market. First, we find that option pricing...

This paper features an analysis of cryptocurrencies and the impact of the COVID-19 pandemic on their effectiveness as a portfolio diversification tool and explores the correlations between the continuously compounded returns on Bitcoin, Ethereum and the S&P500 Index using a variety of parametric...

Exposure to market risk is a core objective of the Capital Asset Pricing Model (CAPM) with a focus on systematic risk. However, traditional OLS Beta model estimations (Ordinary Least Squares) are plagued with several statistical issues. Moreover, the CAPM considers only one source of risk and...

We propose an entropic model of extrinsic utility arising out of the element of choice regarding portfolio re-balancing strategies available to an individual investor who has chosen to invest in a financial structured product with a terminal payoff same as that from a rainbow option. We also...

In this paper we apply random matrix theory (RMT) to the analysis of cross-correlation matrix C constructed from daily returns of 65 stocks traded at the Bolsa Mexicana de Valores during a 8-year trading period. We find that the statistics of most of the eigenvalues in the spectrum of C agrees...

The development of alternative investment has highlighted the limitations of standard performance measures like the Sharpe ratio, primarily because alternative strategies yield returns distributions which can be far from gaussian. In this paper, we propose a new framework in which trades,...