Robust portfolio decisions for financial institutions

Baltas, Ioannis; Xepapadeas, Anastasios; Yannacopoulos, A. N.

doi:10.3934/jdg.2018006

Cited by 26 publications

(9 citation statements)

References 35 publications

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“…That is, we need to study how build model to measure and control uncertainty. For example, some papers develop a robust-entropic optimal control technique to characterize uncertainty of model (see [2,3]). Savku adn Weber [31] use a delayed Markov regime switching jump-diffusion approach to model a stochastic optimal control problem.…”

Section: Supply Chain Coordinationmentioning

confidence: 99%

“…The contribution of this paper is to propose a new hybrid option-buyback contract to coordinate a supply chain with demand information updating, and characterize the conditions under which the supply chain coordination is achieved. Many researches also have considered the issue of inventory management and finance strategy (see [3,28,32] and references therein). Inspired by these classic literatures, this paper can be extended in the following directions.…”

Section: Supply Chain Coordinationmentioning

confidence: 99%

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Coordinating a supply chain with demand information updating

Yang¹,

Peng²

2022

JIMO

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<p style='text-indent:20px;'>We investigate how to coordinate a two-echelon supply chain in which a supplier builds production capacity in advance and a manufacturer makes the ordering decision based on updated demand information. By combining European call option and buyback mechanisms, we propose a new hybrid option-buyback contract to coordinate such a supply chain with demand information updating. We construct a two-stage optimization model in that the supplier offers option price and the manufacturer decides initial ordering quantity in the first stage, then the supplier offers exercise price and buyback price and the manufacturer decides final ordering quantity in the second stage after demand information is updated. In both the centralized and decentralized settings, we analytically derive the optimal equilibrium solutions of two-stage ordering quantity. Particularly, we obtain closed-form formulae to describe the members' optimal behavior with a bivariate uniformly distribution. We prove that the proposed contracts can realize the perfect coordination of the supply chain and analyze how the proposed contracts affect the members' decisions. The theoretical results show that, by tuning the option price or buyback price, the supply chain profit can be arbitrarily split between the members, which is a desired property for supply chain coordination. Compared with the standard option and buyback contract, the proposed contract results in a greater supply chain profit and achieves Pareto improvement for the supply chain members. Furthermore, extending the baseline model focusing on price-independent demand to the case of price-dependent demand, we show that the proposed contract still can achieve supply chain coordination. Numerical examples are also conducted to complement the theoretical results.</p>

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Section: Supply Chain Coordinationmentioning

confidence: 99%

Section: Supply Chain Coordinationmentioning

confidence: 99%

Coordinating a supply chain with demand information updating

Yang¹,

Peng²

2022

JIMO

View full text Add to dashboard Cite

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“…HJB equations for the problems with the misspecification are specifically referred to as Hamilton‐Jacobi‐Bellman‐Isaacs (HJBI) equations. The multiplier‐robust control may not be the most general methodology to deal with model ambiguity, but it can offer effective and tractable mathematical descriptions of the system dynamics that potentially lead to interesting theoretical and mathematical results as in the literature . This formalism has been employed in research areas in finance and economy and insurance focusing on risk preferences of decision‐makers.…”

Section: Introductionmentioning

confidence: 99%

Modeling stochastic operation of reservoir under ambiguity with an emphasis on river management

Yoshioka

2019

Optim Control Appl Methods

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An optimization problem of controlling a dam installed in a river is analyzed based on a stochastic control formalism of a diffusion process under model ambiguity: a new mathematical approach to this issue. The diffusion process is a pathwise unique solution to a water balance equation considering the inflow, outflow, water loss in the reservoir, and direct rainfall. Finding the optimal reservoir operation policy reduces to solving a degenerate parabolic partial differential equation: a Hamilton-Jacobi-Bellman-Isaacs equation. A monotone finite difference scheme is constructed for discretization of the equation, successfully generating nonoscillatory and reasonably accurate numerical solutions. Stability analysis of the resulting water balance dynamics is finally carried out for both environmentally friendly and not friendly reservoir operations. KEYWORDS finite difference scheme, Hamilton-Jacobi-Bellman-Isaacs equation, reservoir operation, stochastic control, viscosity solution INTRODUCTIONThis paper contributes to providing a mathematical framework for modeling and control of reservoirs created in rivers.Since the problem has an engineering background, it is first presented, and then, the issues to be addressed and our contributions are explained.Many rivers have dams serving as central infrastructures to supply essential water resources for human lives. 1-3 The stored water in the reservoir created by a dam is utilized for multiple purposes, such as drinking water, irrigation, and hydropower generation. 4 Several dams are used for flood mitigation as well. 5,6 On the other hand, controlling a dam critically affects its downstream river environment because the original flow regime is altered. 7-9 Sediment transport and attached algae population dynamics in dam downstream experience significant changes because dams trap sediment and the algae growth is highly flow-dependent. 10 Dam operation is thus desired to be environmentally friendly such that its impacts on the downstream are minimized, while it should be fit-for-purpose at the same time.Management of environment and ecology in rivers has been a long-standing engineering problem, 11-13 and mathematical tools and concepts for their modeling, analysis, and control are still developing. Several researchers considered river management problems based on stochastic process models such as stochastic differential equations (SDEs) 14 that can naturally consider stochasticity involved in environmental and ecological processes. 15 Interactions between aquatic species, such as riparian vegetation and fishes, and river discharges have been described with SDEs. 16 Miyamoto and Kimura 17 analyzed seedling, growth, and mortality dynamics of riparian trees subject to stochastic flood disturbances. Vesipa et al 18 764

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“…[26] generalized the ideas and considered variational preferences. [3] applied this approach to optimal portfolio decisions for financial institu-Vol. 6 (2018) tions.…”

Section: Introductionmentioning

confidence: 99%

A Study on a Membrane Ceilings Business under Ambiguity

Fukui

Imai

2018

IJROS

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This paper selects an actual company and conducts a case study with respect to a new business for the company. We observe that the company is starting a membrane ceilings business alongside its existing business selling iron. We apply a real options approach to it and provide valuable implications with regard to managerial decision-making under uncertainty. In this paper, in addition to the standard Net Present Value method and the option pricing theory under risk, the potential model risk is explicitly analyzed. For this reason, this paper analyzes the business under ambiguity. In order to analyze the actual business, we first develop a systematic procedure for deriving managerial flexibility under uncertainty. This includes specifying important risk factors, seeking real options, parameter estimation, handling ambiguity, and deriving the optimal strategy. It reveals that the company is subject to four sources of uncertainty and has two types of real options. Furthermore, we formulate the business as a multiplier robust control problem to evaluate the project value under ambiguity. Our quantitative analysis shows that the real options have a significant impact on the project value of the membrane ceilings business. It further shows that, although the presence of ambiguity changes the optimal exercise strategy, the difference between the optimal strategy under ambiguity and that under risk is not significant from a practical viewpoint.

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Robust portfolio decisions for financial institutions

Cited by 26 publications

References 35 publications

Coordinating a supply chain with demand information updating

Coordinating a supply chain with demand information updating

Modeling stochastic operation of reservoir under ambiguity with an emphasis on river management

A Study on a Membrane Ceilings Business under Ambiguity

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