We propose a tractable model of entrepreneur dynamics where the investment conditions are stochastic. Applying the approach of stochastic control and optimization, we solve the dynamics of the entrepreneur’s optimal investment, consumption and portfolio allocation under regime switching. We find that the interactions of precautionary savings and liquidation boundary advance/postpone motives gen...

This article examines the efficiency of five risk measures in the framework of portfolio optimization for the stocks of four China’s stock markets and investigates which risk measure has the best performance in making asset allocation decisions. The data used are the historical monthly stock returns from 1998 to 2002. Although the downside risk measures are thought to be consistent with investo...

The mean-variance framework for portfolio selection should be revised when investor’s concern is the downside risk. This is especially true when the asset returns are not normal. In this paper, we incorporate value-at-risk (VaR) in portfolio selection and the mean-VaR framework is proposed. Due to the twoobjective optimization problem faced by the meanVaR framework, an evolutionary multi-object...

Under Solvency II the computation of capital requirements is based on value at risk (V@R). V@R is a quantile-based risk measure and neglects extreme risks in the tail. V@R belongs to the family of distortion risk measures. A serious deficiency of V@R is that firms can hide their total downside risk in corporate groups. They can largely reduce their total capital requirements via appropriate tra...

The puzzle is that spreads on corporate bonds are about twice as large as can be explained by defaults, taxes and illiquidity. The higher a bond’s rating and the shorter its maturity, the greater is the puzzle. We use a large dataset of bonds to identify the relevant risk factors. Systematic factors fail to generate large spreads, regardless of whether they are conventional (market covariance, ...

A safety-first investor maximizes expected return subject to a downside risk constraint. w Arzac and Bawa Arzac, E.R., Bawa, V.S., 1977. Portfolio choice and equilibrium in capital x markets with safety-first investors. Journal of Financial Economics 4, 277–288. use the Value at Risk as the downside risk measure. The paper by Gourieroux, Laurent and Scaillet estimates the optimal safety-first p...

The mathematics of downside financial risk can be difficult to understand: For example a 50% loss requires a subsequent 100% gain to break-even. A given percentage loss always requires a greater percentage gain to break-even. Instead, many non-expert investors may assume for example that a 50% gain is sufficient to offset a 50% loss. Over 3,498 participants and five experiments, the widespread ...

Click fraud" is the practice of deceptively clicking on search ads with the intention of either increasing third-party website revenues or exhausting an advertiser’s budget. Search advertisers are forced to trust that search engines do everything possible to detect and prevent click fraud even though the engines get paid for every undetected fraudulent click. We seek to answer whether it is in ...

To create efficient funds appealing to a sector of bank clients, the objective of minimizing downside risk is relevant to managers of funds offered by the banks. In this paper, a case focusing on this objective is developed. More precisely, the scope and purpose of the paper is to apply the mean-semivariance efficient frontier model, which is a recent approach to portfolio selection of stocks w...

Beta as a measure of risk has been under fire for many years. Although practitioners still widely use the CAPM to estimate the cost of equity of companies, they are aware of its problems and are looking for alternatives. A possible alternative is to estimate the cost of equity based on the semideviation. a well-known and intuitively plausible measure of downside risk. Complementing evidence rep...