Alex S. L. Tse
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View article: The (Non-)equivalence of dividends and share buybacks
The (Non-)equivalence of dividends and share buybacks Open
We study a one-period equilibrium model in which a firm optimally determines its equity distribution level to maximize the expected utility of a representative shareholder. Dividends and share buybacks, the two most prevalent payout method…
View article: Periodic portfolio selection with quasi-hyperbolic discounting
Periodic portfolio selection with quasi-hyperbolic discounting Open
We introduce an infinite-horizon, continuous-time portfolio selection problem faced by an agent with periodic S-shaped preference and present bias. The inclusion of a quasi-hyperbolic discount function leads to time-inconsistency and we ch…
View article: Portfolio Optimization under Transaction Costs with Recursive Preferences
Portfolio Optimization under Transaction Costs with Recursive Preferences Open
The Merton investment-consumption problem is fundamental, both in the field of finance, and in stochastic control. An important extension of the problem adds transaction costs, which is highly relevant from a financial perspective but also…
View article: Portfolio Selection, Periodic Evaluations and Risk Taking
Portfolio Selection, Periodic Evaluations and Risk Taking Open
Portfolio risk taking when periodic performance matters Incentives of portfolio managers in real life are typically tied to their periodic performance—a criterion that has received very little attention to date. How does the repeated natur…
View article: The importance of dynamic risk constraints for limited liability operators
The importance of dynamic risk constraints for limited liability operators Open
Previous literature shows that prevalent risk measures such as value at risk or expected shortfall are ineffective to curb excessive risk-taking by a tail-risk-seeking trader with S-shaped utility function in the context of portfolio optim…
View article: Liquidation, Bailout, and Bail-In: Insolvency Resolution Mechanisms and Bank Lending
Liquidation, Bailout, and Bail-In: Insolvency Resolution Mechanisms and Bank Lending Open
We present a dynamic, continuous-time model in which risk averse inside equityholders set a bank’s lending, payout, and financing policies, and the exposure of bank assets to crashes. We examine whether bailouts encourage excessive lending…
View article: The importance of dynamic risk constraints for limited liability\n operators
The importance of dynamic risk constraints for limited liability\n operators Open
Previous literature shows that prevalent risk measures such as Value at Risk\nor Expected Shortfall are ineffective to curb excessive risk-taking by a\ntail-risk-seeking trader with S-shaped utility function in the context of\nportfolio op…
View article: The importance of dynamic risk constraints for limited liability operators
The importance of dynamic risk constraints for limited liability operators Open
Previous literature shows that prevalent risk measures such as Value at Risk or Expected Shortfall are ineffective to curb excessive risk-taking by a tail-risk-seeking trader with S-shaped utility function in the context of portfolio optim…
View article: Dividend policy and capital structure of a defaultable firm
Dividend policy and capital structure of a defaultable firm Open
Default risk significantly affects the corporate policies of a firm. We develop a model in which a limited liability entity subject to default at an exponential random time jointly sets its dividend policy and capital structure to maximize…
View article: Speculative Trading, Prospect Theory and Transaction Costs
Speculative Trading, Prospect Theory and Transaction Costs Open
A speculative agent with Prospect Theory preference chooses the optimal time to purchase and then to sell an indivisible risky asset to maximize the expected utility of the round-trip profit net of transaction costs. The optimization probl…
View article: A multi-asset investment and consumption problem with transaction costs
A multi-asset investment and consumption problem with transaction costs Open
In this article, we study a multi-asset version of the Merton investment and consumption problem with CRRA utility and proportional transaction costs. We specialise to a case where transaction costs are zero except for sales and purchases …
View article: A multi-asset investment and consumption problem with transaction costs
A multi-asset investment and consumption problem with transaction costs Open
In this article we study a multi-asset version of the Merton investment and consumption problem with proportional transaction costs. In general it is difficult to make analytical progress towards a solution in such problems, but we special…
View article: Optimal consumption and investment under transaction costs
Optimal consumption and investment under transaction costs Open
In this article we consider the Merton problem in a market with a single risky asset and transaction costs. We give a complete solution of the problem up to the solution of a free-boundary problem for a first-order differential equation, a…
View article: Dynamic economic decision problems under behavioural preferences and market imperfections.
Dynamic economic decision problems under behavioural preferences and market imperfections. Open
This thesis is a collection of three individual works on dynamic economic decision problems which go beyond expected utility maximisation in complete markets. The first chapter introduces an asset liquidation model under prospect theory pr…
View article: Can Probability Weighting Help Prospect Theory Explain the Disposition Effect
Can Probability Weighting Help Prospect Theory Explain the Disposition Effect Open
Prospect theory (PT) has long been linked with the disposition effect. Despite significant progress made in rigorously modeling the trading behavior of PT investors, the predicted disposition effect is typically too strong relative to empi…