This paper explicitly derives the optimal dynamic consumption and portfolio choice of an individual with prospect theory preferences. The individual is loss averse, endogenously updates his reference level over time, and distorts probabilities. We show that the optimal consumption strategy is...

In this paper, we develop econometric tools to analyze the integrated volatility (IV) of the efficient price and the dynamic properties of microstructure noise in high-frequency data under general dependent noise. We first develop consistent estimators of the variance and autocovariances of...

We present an axiomatic characterization of price measures that are superadditive and comonotonic additive for normally distributed random variables. The price representation derived involves a probability measure transform that is closely related to the Esscher transform, and we call it the...

Risk measures have been studied for several decades in the actuarial literature, where they appeared under the guise of premium calculation principles. Risk measures and properties that risk measures should satisfy have recently received considerable attention in the financial mathematics...

Theorem 15 of Embrechts, Houml;ing amp; Puccetti (IME, 2005) proves that the comonotonic dependence structure gives rise to the on-average-most-adverse Value-at-Risk scenario for a function of dependent risks, when the marginal distributions are known but the dependence structure between the...