10,211 research outputs found
Optimal Payoffs under State-dependent Preferences
Most decision theories, including expected utility theory, rank dependent
utility theory and cumulative prospect theory, assume that investors are only
interested in the distribution of returns and not in the states of the economy
in which income is received. Optimal payoffs have their lowest outcomes when
the economy is in a downturn, and this feature is often at odds with the needs
of many investors. We introduce a framework for portfolio selection within
which state-dependent preferences can be accommodated. Specifically, we assume
that investors care about the distribution of final wealth and its interaction
with some benchmark. In this context, we are able to characterize optimal
payoffs in explicit form. Furthermore, we extend the classical expected utility
optimization problem of Merton to the state-dependent situation. Some
applications in security design are discussed in detail and we also solve some
stochastic extensions of the target probability optimization problem
On 1-convexity and nucleolus of co-insurance games
The situation, in which an enormous risk is insured by a number of insurance companies, is modeled through a cooperative TU game, the so-called co-insurance game, first introduced in Fragnelli and Marina (2004). In this paper we show that a co-insurance game possesses several interesting properties that allow to study the nonemptiness and the structure of the core and to construct an efficient algorithm for computing the nucleolus
Financing practices in the German venture capital industry : an empirical assessment
This paper investigates the financial contracting behavior of German venture capitalists against the results of recent theoretical work on the design of venture capital contracts, especially with regard to the use of convertible securities. First, we identify a special feature of the German market, namely that public-private partnership agencies require significantly lower returns than private and young venture capitalists. The latter are most likely to follow their North-American counterpart by refinancing themselves with closed-end funds. Second, with regard to financing practices it is shown that the use of convertibles, relative to other instruments, is influenced by the anticipated severity of agency problems. Klassifikation: C24; G24; G3
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