This paper offers an ambiguity-based interpretation of variance premium --- the difference between risk-neutral and objective expectations of market return variance --- as a compounding effect of both belief distortion and variance differential regarding the uncertain economic regimes. Our...

This paper offers an ambiguity-based interpretation of variance premium - the difference between risk-neutral and objective expectations of market return variance - as a compounding effect of both belief distortion and variance differential regarding the uncertain economic regimes. Our approach...

Robust optimization models present a compelling methodology for optimization under uncertainty, providing a practical, ambiguity-averse evaluation of risk when the probability distribution is encapsulated by an ambiguity set. We introduce the moment-dispersion ambiguity set, an improvement on...