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Expectation of the negative exponential utility function for a Grossman and Miller model

I have the standard $3$-period Grossman and Miller model with $2$ outside traders and $M$ market makers. I'm told: $W_t^{(1)}, W_t^{(2)}, W_t^{(m)}$ is the wealth of the first outside trader, second ...
Charlie P's user avatar
1 vote
0 answers

CVaR portfolio optimization with risk aversion parameter

I'm trying to implement the Rockafellar's function described in this paper with a risk aversion parameter for my thesis. The function to ...
Malva's user avatar
  • 11
2 votes
0 answers

Ito isometry of variance of integral on interval [t, t+1]

Can I use Ito isometry to calculate $Var(Y_t)$ where $Y_t= \int_{t}^{t+1}B_sdB_s$ and $B_s$ is Brownian motion, in this way? Is my reasoning correct? $$Var(Y_t)=E[Y_t^2]-(E[Y_t])^2$$ Applying Ito ...
user36595's user avatar
6 votes
2 answers

Intuitive explanation for expectiles

I am looking for an intuitive explanation for expectiles. Here is a link to a paper about expectiles: Bellini and Di Bernardino: Risk Management with Expectiles, European Journal of Finance, May ...
PalimPalim's user avatar
1 vote
1 answer

Expected Shortfall Basel III style: what is the idea?

I would like to do a qualitative question about the Expected shortfall in the Basel 3 document. First of all let me introduce few definitions. Suppose to have a portfolio $P$ depending on a family ...
clarkmaio's user avatar
  • 455
1 vote
1 answer

Explain Four Basic Axioms of Maximising Expected Utility

I begin learn PRM , Someone help me understand Four Basic Axioms of Maximising Expected Utility most intuitive way .Thank you very much
phạm Dũng's user avatar
3 votes
2 answers

Integration to calculate expected value of swap rate

In Hagan's paper on valuing CMS swaps (Convexity Conundrums: Pricing CMS Swaps, Caps, and Floors), there is: So the swap rate must also be a Martingale, and $$E \big[ R_s(\tau) \big| \mathcal{...
Sithered's user avatar
  • 808
2 votes
1 answer

Expected returns vs expected prices?

This may be the most stupid question ever asked here, so sorry in advance for asking it. Suppose we have a single period security which gives dividend $D_{t+1}$ and has current price $P_t$. By ...
fni's user avatar
  • 1,896
0 votes
0 answers

Rational expectation meaning

What does rational expectation (RE) mean in agent-based modeling context? What are the relationships between RE and expectation and outcome?
Ranaivo's user avatar
  • 101