This paper considers the optimal asset allocation strategy for bank with stochastic interest rates when there are three types of asset: Bank account, loans and securities. The asset allocation problem is to maximize the expected utility from terminal wealth of a bank's shareholders over a finite...

A two-stage control problem is one, in which model parameters (“technology”) might be changed at some time. An optimal solution to utility maximisation for this class of problems needs to thus contain information on the time, at which the change will take place (0, finite or never) as well...

This paper presents a set of benchmark moments for evaluation or estimation of quantitative capital structure models. The moments are directly related to the models being studied: the main features of each models' empirical policy functions. The paper describe a general method for estimating...

This short paper demonstrates that the claim of Cumulative Prospect Theory (CPT) that people are risk seeking for loss prospects, which confirmed a hypothetical assumption of the earlier Prospect Theory (PT), appears to be merely a result of using a specific form of the probability weighting...

Cumulative Prospect Theory (Kahneman, Tversky, 1979, 1992) holds that the value function is described using a power function, and is concave for gains and convex for losses. These postulates are questioned on the basis of recently reported experiments, paradoxes (gain-loss separability...