Research

Overview

Broad as they may seem, my works mostly share a common theme - dynamic economic decision problem that goes beyond the standard paradigm of "expected utility maximization in a complete market". So far, I have been looking at:

i) Behavioral preference prescribed by prospect theory, in particular its probability weighting component;

ii) Market frictions induced by proportional transaction costs or capital injection constraint;

iii) Interventions on failed financial intermediaries via different insolvency resolution mechanisms. 

iv) Distortion of incentives due to the limited-liability feature of a trader and its implication to risk management. 

While most of my projects are motivated by concrete economic problems, the technical tools developed along the way are usually of interests to certain fields of stochastic analysis such as optimal stopping and stochastic control. 

Recently, I have become more interested in the computational aspects of the above topics. One key area I would like to explore is tax-loss harvesting in the context of portfolio optimisation via machine learning.

Publications

[10] The importance of dynamic risk constraints for limited liability operators, 2024 (with Armstrong, J. and Brigo, D.). Annals of Operations Research, 336, 861–898.

[9] Portfolio selection, periodic evaluations and risk taking, 2023 (with Zheng, H.). SSRN 3971852. Operations Research, 71(6), 2078-2091.

[8] Speculative trading, prospect theory and transaction costs, 2023 (with Zheng, H.). arxiv:1911.10106. Finance and Stochastics, 27(1), 49-96. 

[7] Liquidation, bailout, and bail-in: Insolvency resolution mechanisms and bank lending, 2023 (with Lambrecht, B.). SSRN 3123170. Journal of Financial and Quantitative Analysis, 58(1), 175-216. 

[6] Dividend policy and capital structure of a defaultable firm, 2020. arXiv:1810.03501. Mathematical Finance, 30(3), 961-994.

[5] A multi-asset investment and consumption problem with transaction costs, 2019 (with Hobson D. and Zhu, Y.). arXiv:1612.01327. Finance and Stochastics, 23(3), 641-676. 

[4] Optimal consumption and investment under transaction costs, 2019 (with Hobson, D. and Zhu, Y.). arXiv:1612.00720. Mathematical Finance, 29(2), 483-506.

[3] Probability weighting, stop-loss and the disposition effect, 2018 (with Henderson, V. and Hobson, D.). SSRN 2823449. Journal of Economic Theory, 178, 360-397.

[2] Randomized strategies and prospect theory in a dynamic context, 2017 (with Henderson, V. and Hobson, D.). SSRN 2531457. Journal of Economic Theory, 168, 287-300.

[1] Dynamic modeling of tail risk: applications to China, Hong Kong and other Asian markets, 2009 (with So, M. K. P.). SSRN 1414865. Asia-Pacific Financial Markets, 16(3), 183-210.

Working papers / works in preparation

Optimal option market making and volatility arbitrage, 2024 (with Lucic, V.). 

Portfolio optimization under transaction costs with recursive preferences, 2024 (with Herdegen, M. and Hobson, D.).

FX open forward, 2024 (with Hok, J.). 

Periodic portfolio selection with quasi-hyperbolic discounting  (with Hamaguchi, Y.).

Ad-hoc referee services

European Journal of Operational Research; Finance and Stochastics; International Economic Review; Journal of Banking and Finance; Journal of Business & Economic Statistics; Journal of Economic Dynamics and Control; Journal of Economic Theory; Management Science; Mathematical Finance; Mathematics and Financial Economics; Quantitative Finance; Review of Financial Studies; SIAM Journal on Financial Mathematics.