UNCERTAINTY

Financial Decision Making under Multi-Dimentional Uncertainty

 Coordinatore TEL AVIV UNIVERSITY 

 Organization address address: RAMAT AVIV
city: TEL AVIV
postcode: 69978

contact info
Titolo: Ms.
Nome: Lea
Cognome: Pais
Email: send email
Telefono: 972-3-6408774
Fax: -6408728

 Nazionalità Coordinatore Israel [IL]
 Totale costo 232˙315 €
 EC contributo 232˙315 €
 Programma FP7-PEOPLE
Specific programme "People" implementing the Seventh Framework Programme of the European Community for research, technological development and demonstration activities (2007 to 2013)
 Code Call FP7-PEOPLE-2009-IOF
 Funding Scheme MC-IOF
 Anno di inizio 2010
 Periodo (anno-mese-giorno) 2010-08-01   -   2013-07-31

 Partecipanti

# participant  country  role  EC contrib. [€] 
1    TEL AVIV UNIVERSITY

 Organization address address: RAMAT AVIV
city: TEL AVIV
postcode: 69978

contact info
Titolo: Ms.
Nome: Lea
Cognome: Pais
Email: send email
Telefono: 972-3-6408774
Fax: -6408728

IL (TEL AVIV) coordinator 232˙315.90

Mappa


 Word cloud

Esplora la "nuvola delle parole (Word Cloud) per avere un'idea di massima del progetto.

standard    recent    university    uncertainty    izhakian    option    structure    puzzle    manner    prof    model    place    decision    rate    pricing    ambiguity    financial    risk    realistic    framework    models   

 Obiettivo del progetto (Objective)

'During the recent decade it has become commonly agreeable that existing financial models cannot explain many observable phenomena in the financial world (e.g. the recent mortgage crisis and its worldwide effects, equity premium puzzle and home bias in investing). One flaw of the existing models is that they do not capture the entire picture of uncertainty. This research generalizes models of asset pricing to accommodate additional tier of uncertainty, called ambiguity. Namely, we model financial decision making in a more realistic manner by dropping the standard and restrictive assumption that economic agents know the precise odds of possible events and their accurate monetary outcomes. We formulate financial decision making under multi-dimensional uncertainty using the novel mathematical framework of phantom probability, introduced by Izhakian and Izhakian (2009). This proposal addresses a series of fundamental questions about the nature of ambiguity: How optimal portfolio composition is affected by ambiguity? Whether ambiguity leads to greater savings compared to the standard risk formulations. When do ambiguity and risk reinforce (counteract) each other? How can the level of ambiguity be measured? Can ambiguity be eliminated or reduced by diversification in a manner similar to idiosyncratic risk in the CAPM framework? The effect of ambiguity in an intertemporal framework is highly related to implication of the term structure of interest rate and option pricing. Accommodating ambiguity to option and term structure models can explain some deviations from Black-Scholes pricing formula (e.g. the option “smile”, under pricing and risk-free rate puzzle) and might also produce more realistic term structure model. This research project is supervised by Prof. Thomas Sargent, Prof. Simon Benninga and Prof. Itzhak Gilboa. The outgoing phase will take place at New York University and the return phase will take place at Tel Aviv University.'

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