Department of Industrial Engineering & Decision Analysis [Joint IEDA / MATH seminar] - Asset Pricing with α-maxmim Expected Utility Model
We study an asset pricing problem in which a representative agent trades a risky stock, a risk-free asset, and human capital to maximize her preference value of consumption represented by the α-maxmin expected utility model. This preference model is known to lead to time inconsistency, so we consider intra-personal equilibrium for the representative agent and define the market equilibrium to the set of asset prices under which the intra-personal equilibrium strategy clears the market. We prove that there exists a unique market equilibrium and the asset prices are determined by the solution to a second-order ordinary differential equation. Finally, we conduct comparative statics to study the effect of the agent's ambiguity attitude on the asset prices.
This is a joint work with Jiacheng Fan and Ruocheng Wu.
Xuedong He received the B.Sc. degree in Mathematics and Applied Mathematics from Peking University in 2005 and the Ph.D. degree in Mathematical Finance from the University of Oxford in 2009. He was an assistant professor at Columbia University in 2009 – 2015 and joined the Chinese University of Hong Kong as an associate professor in 2016.
Xuedong He’s research interests include behavioral finance and economics, risk management, stochastic control, and financial technology. He has published papers in leading journals such as Management Science, Operations Research, Mathematical Finance, and Mathematics of Operations Research. He is serving as Associate Editors for Operations Research, Mathematics and Financial Economics, Operations Research Letters, and Digital Finance. He also organized clusters and sessions in international conferences such as the INFORMS Annual Meetings and SIAM Financial Mathematics and Engineering Conferences.