Realized divergence gauges the distinct realized moments associated with time-varying uncertainty and is tradeable with divergence swaps engineered from delta-hedged option portfolios. Consistently with established notions of symmetry in arbitrage-free option markets, implied divergence...

We investigate what it means for one act to be more ambiguous than another. The question is evidently analogous to asking what makes one prospect riskier than another, but beliefs are neither objective nor representable by a unique probability. Our starting point is an abstract class of...

The global minimum variance portfolio computed using the sample covariance matrix is known to be negatively affected by parameter uncertainty, an important component of model risk. Using a robust approach, we introduce a portfolio rule for investors who wish to invest in the global minimum...

We address the problem of minimizing the risk of an exposure (e.g., cash holdings) to a small number of defaultable counterparties based on spectral risk measures, in particular the expected shortfall. The resulting risk-minimal allocation turns out to be economically implausible in a number of...

Electricity producers participating in electricity markets face risks pertaining to both selling prices and the availability of the production units. Among electricity derivatives, options represent an adequate instrument to manage these risks. In this paper, we propose a multi-stage stochastic...

We can overcome uncertainty with uncertainty. Using randomness in our choices and in what we control, and hence in the decision making process, could potentially offset the uncertainty inherent in the environment and yield better outcomes. The example we develop in greater detail is the...

This paper proposes a new method to introduce coherent risk measures for risks with infinite expectation, such as those characterized by some Pareto distributions. Extensions of the conditional value at risk, the weighted conditional value at risk and other examples are given. Actuarial...

We can overcome uncertainty with uncertainty. Using randomness in our choices and in what we control and hence in the decision making process, could potentially offset the uncertainty inherent in the environment and yield better outcomes. This methodology is suitable for the social sciences...

In confidence theory, the decision maker relies on statistical regularities from the economic environment to adopt prior beliefs about the probabilities stated on a lottery. Following the confidence principle, by which the weight of the prior in Bayesian inference is proportional to the...