We analyze the portfolio planning problem of an ambiguity averse investor. The stock follows a jump-diffusion process. We find that there are pronounced differences between ambiguity aversion with respect to diffusion risk and jump risk. Ignoring ambiguity with respect to jump risk causes larger...

The recent theoretical asset allocation literature has derived optimal dynamic investment strategies in various advanced models of asset returns. But how sensitive is investor welfare to deviations from the theoretically optimal strategy? Will unsophisticated investors do almost as well as...

The trends and consequences of terrorist activities are often captured by counting the number of incidents and casualties. More recently, the effects of terrorist acts on various aspects of the economy have been analyzed. These costs are surveyed and put in perspective. As economic consequences...