scholarly journals Auctioning risk: the all-pay auction under mean-variance preferences

2021 ◽  
Author(s):  
Bettina Klose ◽  
Paul Schweinzer
Keyword(s):  
Incomplete Information ◽  
Symmetric Equilibrium ◽  
Risk Neutral ◽  
Noisy Signals ◽  
High Valuation ◽  
General Distributions ◽  
All Pay Auction ◽  
Mean Variance ◽  
Neutral Case

AbstractWe analyse the all-pay auction with incomplete information and variance-averse bidders. We characterise the unique symmetric equilibrium for general distributions of valuations and any number of bidders. Variance aversion is a sufficient assumption to predict that high-valuation bidders increase their bids relative to the risk-neutral case while low types decrease their bid. Considering an asymmetric two-player environment with uniformly distributed valuations, we show that a variance-averse player always bids higher than her risk-neutral opponent with the same valuation. Utilising our analytically derived bidding functions we discuss all-pay auctions with variance-averse bidders from an auction designer’s perspective. We briefly consider possible extensions of our model, including noisy signals, type-dependent attitudes towards risk, and variance-seeking preferences.

scholarly journals Optimal Risk Budgeting under a Finite Investment Horizon

Risks ◽  
2019 ◽  
Vol 7 (3) ◽  
pp. 86
Author(s):  
Marcos López de Prado ◽  
Ralph Vince ◽  
Qiji Jim Zhu
Keyword(s):  
Quantitative Methods ◽  
Optimal Portfolio ◽  
Investment Horizon ◽  
Risk Averse ◽  
Growth Optimal Portfolio ◽  
Risk Budgeting ◽  
Risk Parity ◽  
Risk Neutral ◽  
Mean Variance

The Growth-Optimal Portfolio (GOP) theory determines the path of bet sizes that maximize long-term wealth. This multi-horizon goal makes it more appealing among practitioners than myopic approaches, like Markowitz’s mean-variance or risk parity. The GOP literature typically considers risk-neutral investors with an infinite investment horizon. In this paper, we compute the optimal bet sizes in the more realistic setting of risk-averse investors with finite investment horizons. We find that, under this more realistic setting, the optimal bet sizes are considerably smaller than previously suggested by the GOP literature. We also develop quantitative methods for determining the risk-adjusted growth allocations (or risk budgeting) for a given finite investment horizon.

scholarly journals Coordinating Contracts for Two-Stage Fashion Supply Chain with Risk-Averse Retailer and Price-Dependent Demand

2013 ◽  
Vol 2013 ◽  
pp. 1-12 ◽  
Author(s):  
Minli Xu ◽  
Qiao Wang ◽  
Linhan Ouyang
Keyword(s):  
Supply Chain ◽  
Supply Chain Coordination ◽  
Revenue Sharing ◽  
Channel Coordination ◽  
Risk Averse ◽  
Revenue Sharing Contract ◽  
Risk Neutral ◽  
Mean Variance ◽  
Variance Approach ◽  
Dependent Demand

When the demand is sensitive to retail price, revenue sharing contract and two-part tariff contract have been shown to be able to coordinate supply chains with risk neutral agents. We extend the previous studies to consider a risk-averse retailer in a two-echelon fashion supply chain. Based on the classic mean-variance approach in finance, the issue of channel coordination in a fashion supply chain with risk-averse retailer and price-dependent demand is investigated. We propose both single contracts and joint contracts to achieve supply chain coordination. We find that the coordinating revenue sharing contract and two-part tariff contract in the supply chain with risk neutral agents are still useful to coordinate the supply chain taking into account the degree of risk aversion of fashion retailer, whereas a more complex sales rebate and penalty (SRP) contract fails to do so. When using combined contracts to coordinate the supply chain, we demonstrate that only revenue sharing with two-part tariff contract can coordinate the fashion supply chain. The optimal conditions for contract parameters to achieve channel coordination are determined. Numerical analysis is presented to supplement the results and more insights are gained.

Strategic Investment under Incomplete Information

2018 ◽  
Vol 18 (2) ◽  
Author(s):  
Mohammad H. Dehghani
Keyword(s):  
Incomplete Information ◽  
The Other ◽  
Investment Strategies ◽  
Symmetric Equilibrium ◽  
Sunk Cost ◽  
Strategic Investment ◽  
First Case ◽  
Investment Cost ◽  
Lower Uncertainty ◽  
First Mover

Abstract This paper studies how hiding sunk cost of investment would affect investment strategies in a duopoly. The investment would improve profit. If this improvement is larger for the first mover than the second mover, this study finds a unique symmetric equilibrium for a subset of such cases. On the other hand, a larger improvement for the second mover results in a class of symmetric equilibria. For the first case, the surplus to sharing information increases with higher volatility of profit flow and lower uncertainty about the investment cost. For the second case, this surplus grows with both mentioned types of uncertainty.

COOPERATION AND COMPETITION: LEARNING OF STRATEGIES AND EVOLUTION OF PREFERENCES IN PRISONERS' DILEMMA AND HAWK-DOVE GAMES

2005 ◽  
Vol 07 (04) ◽  
pp. 443-459 ◽  
Author(s):  
ALEX POSSAJENNIKOV
Keyword(s):  
Incomplete Information ◽  
Complete Information ◽  
Symmetric Equilibrium ◽  
Cooperation And Competition ◽  
Strategy Profile ◽  
Prisoners Dilemma ◽  
Evolution Of Preferences ◽  
Reciprocal Preferences

By means of simulations I investigate a two-speed dynamic on strategies and preferences in prisoners' dilemmas and in hawk-dove games. Players learn strategies according to their preferences while evolution leads to a change in the preference composition. With complete information about the preferences of the opponent, cooperation in prisoners' dilemmas is achieved temporarily, with "reciprocal" preferences. In hawk-dove games, a symmetric correlated strategy profile is played that does not place any weight on mutual restraint. Among preferences only "hawkish" preferences and "selfish" preferences survive. With incomplete information, the symmetric equilibrium of the game is played. In prisoners' dilemmas only "selfish" and "reciprocal" preferences survive. In hawk-dove games all preferences are present in the medium run.

scholarly journals A Note on CCMV Portfolio Optimization Model with Short Selling and Risk-neutral Interest Rate

2020 ◽  
Vol 8 (3) ◽  
pp. 740-748 ◽  
Author(s):  
Tahereh Khodamoradi ◽  
Maziar Salahi ◽  
Ali Reza Najafi
Keyword(s):  
Interest Rate ◽  
Portfolio Optimization ◽  
Upper Bounds ◽  
Short Selling ◽  
Lower And Upper Bounds ◽  
Data Set ◽  
Risk Neutral ◽  
Sharpe Ratios ◽  
Portfolio Optimization Model ◽  
Mean Variance

In this paper, first we present some drawbacks of the cardinality constrained mean-variance (CCMV) portfolio optimization with short selling and risk-neutral interest rate when the lower and upper bounds of the assets contributions are -1/K and 1/K(K denotes the number of assets in portfolio). Then, we present an improved variant using absolute returns instead of the returns to include short selling in the model. Finally, some numerical results are provided using the data set of the S&P 500 index, Information Technology, and the MIBTEL index in terms of returns and Sharpe ratios to compare the proposed models with those in the literature.

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