Isoelastic utility
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Evaluating gambles using dynamics Open
Gambles are random variables that model possible changes in wealth. Classic decision theory transforms money into utility through a utility function and defines the value of a gamble as the expectation value of utility changes. Utility fun…
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Choosing and Using Utility Functions in Forming Portfolios Open
Utility functions offer a means to \nencode objectives and preferences \nin investor portfolios. The functions \nallow one to place a score \non outcomes and then identify \noptimal portfolios by maximizing \nutility. The central theme of …
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Consistent utility of investment and consumption: a forward/backward SPDE viewpoint Open
International audience
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Optimism and Pessimism with Expected Utility Open
Maximizing subjective expected utility is the classic model of decision making under uncertainty. Savage [Savage, Leonard J. (1954). The Foundation of Statistics. Wiley, New York] provides axioms on preference over acts that are equivalent…
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Forward Utility and Market Adjustments in Relative Investment-Consumption Games of Many Players Open
We study a portfolio management problem featuring many-player and mean field\ncompetition, investment and consumption, and relative performance concerns\nunder the forward performance processes (FPP) framework. We focus on agents\nusing po…
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On recursive utilities with non-affine aggregator and conditional certainty equivalent Open
In this paper, we consider the problem of the existence and the uniqueness of a recursive utility function defined on intertemporal lotteries. The purpose of this paper is to provide the results of the existence and the uniqueness of a rec…
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Equilibrium investment with random risk aversion Open
We solve the problem of an investor who maximizes utility but faces random preferences. We propose a problem formulation based on expected certainty equivalents. We tackle the time‐consistency issues arising from that formulation by applyi…
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Optimal reinsurance and investment strategies for an insurer and a reinsurer under Hestons SV model: HARA utility and Legendre transform Open
The present paper investigates an optimal reinsurance-investment problem with Hyperbolic Absolute Risk Aversion (HARA) utility. The paper is distinguished from other literature by taking into account the interests of both an insurer and a …
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A Generalization of Quantal Response Equilibrium via Perturbed Utility Open
We present a tractable generalization of quantal response equilibrium via non-expected utility preferences. In particular, we introduce concave perturbed utility games in which an individual has strategy-specific utility indices that depen…
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Recursive utility using the stochastic maximum principle Open
Motivated by the problems of the conventional model in rationalizing market data, we derive the equilibrium interest rate and risk premiums using recursive utility in a continuous-time model. We use the stochastic maximum principle to anal…
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Sensitivity analysis of the utility maximization problem with respect to model perturbations Open
We study the sensitivity of the expected utility maximization problem in a continuous semi-martingale market with respect to small changes in the market price of risk. Assuming that the preferences of a rational economic agent are modeled …
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Optimal allocations with <i>α</i>‐MaxMin utilities, Choquet expected utilities, and prospect theory Open
The analysis of optimal risk sharing has been thus far largely restricted to nonexpected utility models with concave utility functions, where concavity is an expression of ambiguity aversion and/or risk aversion. This paper extends the ana…
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RISK SHARING WITH EXPECTED AND DUAL UTILITIES Open
This paper analyzes optimal risk sharing among agents that are endowed with either expected utility preferences or with dual utility preferences. We find that Pareto optimal risk redistributions and the competitive equilibria can be obtain…
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Time-inconsistent consumption-investment problem for a member in a defined contribution pension plan Open
In this paper, we investigate the consumption-investment problem fora member of the defined contribution pension plan with non-constanttime preferences. The aim of the member is to maximize the discountedutility of the consumption. It lead…
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Stochastic dynamic programming with non-linear discounting Open
In this paper, we study a Markov decision process with a non-linear discount function and with a Borel state space. We define a recursive discounted utility, which resembles non-additive utility functions considered in a number of models i…
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Optimal reinsurance and investment strategy with two piece utility function Open
This paper studies optimal reinsurance and investment strategies that maximize expected utility of the terminal wealth for an insurer in a stochastic market. The insurer's preference is represented by a two-piece utility function which can…
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Optimal annuity demand for general expected utility agents Open
We study the robustness of the results of Milevsky and Huang (2018) on the optimal demand for annuities to the choice of the utility function. To do so, we first propose a new way to span the set of all increasing concave utility functions…
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On Utility Maximisation Under Model Uncertainty in Discrete-Time Markets Open
We study the problem of maximising terminal utility for an agent facing model uncertainty, in a frictionless discrete-time market with one safe asset and finitely many risky assets. We show that an optimal investment strategy exists if the…
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What Are Asset Demand Tests of Expected Utility Really Testing?* Open
Assuming the classic contingent claim setting, a number of financial asset demand tests of Expected Utility have been developed and implemented in experimental settings. However, the domain of preferences of these asset demand tests differ…
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Portfolio Strategy for an Investor with Logarithm Utility and Stochastic Interest Rate under Constant Elasticity of Variance Model Open
This paper is aim at maximizing the expected utility of an investor’s terminal wealth; to achieve this, we study the optimal portfolio strategy for an investor with logarithm utility function under constant elasticity of variance (CEV) mod…
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Estimation of the Utility Function of Money and Housing Based on the Cumulative Prospect Theory Open
This article addresses the issue of the utility of money and the utility of housing with a value equivalent to that amount of money. The literature provides many reports on the shape of the utility function for money, but much less researc…
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Some Forms of InvestorRiskTolerance in Investing: Review Theory Open
Investors in investing are always accompanied by a sense of tolerance for the risk of funds invested in an asset. Each investor has a different form of risk tolerance, depending on the function of the utility. This paper aims to conduct a …
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Expected Utility Maximization and Conditional Value-at-Risk Deviation-based Sharpe Ratio in Dynamic Stochastic Portfolio Optimization Open
In this paper we investigate the expected terminal utility maximization approach for a dynamic stochastic portfolio optimization problem. We solve it numerically by solving an evolutionary Hamilton-Jacobi-Bellman equation which is transfor…
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Application of Generalized Geometric Itô-Lévy Process to Investment-Consumption-Insurance Optimization Problem under Inflation Risk Open
We consider a problem of maximizing the utility of an agent who invests in a stock, money market account and an index bond incorporating life insurance, deterministic income, and consumption. The stock is assumed to be a generalized geomet…
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Optimal Consumption and Portfolio Decision with Heston’s SV Model Under HARA Utility Criterion Open
This paper studies the optimal consumption-investment strategy with Heston’s stochastic volatility (SV) model under hyperbolic absolute risk aversion (HARA) utility criterion. The financial market is composed of a risk-less asset and a ris…
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Optimal consumption, investment and life insurance selection under robust utilities Open
We study the problem faced by a wage earner with an uncertain lifetime who has access to a Black–Scholes-type financial market consisting of one risk-free security and one risky asset. His preferences relative to consumption, investment an…
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Multi-period power utility optimization under stock return predictability Open
In this paper, we derive an analytical solution to the dynamic optimal portfolio choice problem in the case of an investor equipped with a power utility function of wealth. The results are established by solving the Bellman backward recurs…
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Necessity of Hyperbolic Absolute Risk Aversion for the Concavity of Consumption Functions Open
Carroll and Kimball (1996) have shown that, in the class of utility functions that are strictly increasing, strictly concave, and have nonnegative third derivatives, hyperbolic absolute risk aversion (HARA) is sufficient for the concavity …
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Closed-form Solutions for an Explicit Modern Ideal Tontine with Bequest Motive Open
In this paper I extend the work of Bernhardt and Donnelly (2019) dealing with modern explicit tontines, as a way of providing income under a specified bequest motive, from a defined contribution pension pot. A key feature of the present pa…
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Duality theory under model uncertainty for non-concave utility functions Open
The main goal for this paper is to study the robust utility maximization functional, i.e. sup_{X\in\Xi(x)} inf_{Q\in\mathsf{Q}} E_Q [U(X_T)]; of the terminal wealth in complete market models, when the investor is uncertain about the underl…