Value-at-risk under ambiguity aversion

This study explored the effects of ambiguity on the calculation of Value-at-Risk(VaR)using a mathematical model based on the theory of Choquet-Brownian processes.It was found that while a moderate degree of ambiguity aversion yields a higher value for VaR and Expected Shortfall(ES),the result can be reversed in a deeply ambiguous environment.Additionally,some sufficient conditions are provided for the preservation of this effect under various forms of risk aggregation.This study offers a new perspective to full awareness on capital requirement calculation as requested by international regulation.

Uncertainty aversion and farmers' innovative seed adoption:Evidence from a field experiment in rural China

Based on the microdata of 705 wheat farmers in the Loess Plateau, this study empirically analyzes the impact of uncertainty on farmers' adoption of innovative seeds using a field experiment. The results indicate that farmers are generally ambiguity-averse and risk-averse. In addition, farmers with higher ambiguity aversion and risk aversion are less likely to adopt innovative wheat seeds, where their risk aversion plays a dominant role. Enhancing information access will alleviate the negative influence of ambiguity aversion on farmers' adoption of innovative seeds, and interlinked insurance and credit contracts will be beneficial to ease the adverse effect of risk aversion on the adoption of innovative wheat seeds. Meanwhile, heterogeneity analysis reveals that the inhibitory effects of ambiguity aversion and risk aversion on innovative seed adoption are more significant among farmers with lower education and household income.The government can establish both ex-ante and ex-post relevant guarantee mechanisms to help farmers preferably cope with various uncertainties in the production process, remitting farmers' ambiguity aversion and risk aversion to enhance new agricultural technology adoption rates.

Correlation ambiguity,listing choice,and market microstructure

This paper investigates the implication of correlation ambiguity to investor behavior,asset pricing and issuers'listing choices from a market microstructure perspective.We introduce two markets to a multi-asset model:Market A is transparent and Market B is opaque,or Market A with low and Market B with high ambiguity perceived by investors.Each firm can choose only a unique market to list its stock.Due to ambiguity aversion,a naïve investor's demand function demonstrates piecewise linear.Such trading behavior may lead to different equilibria and hence different market-clearing prices for each listing outcome.Rational entrepreneurs make optimal listing decisions depending on asset prices in alternative markets.We further demonstrate that a crafted design of specific features of the microstructure,such as listing standards and disclosure requirements,can effectively reduce the perceived ambiguity and induce more naïve investors'participation to improve market liquidity,maintain greater volume,and lower the cost of capital,so as to attract more new listings.

Correlation uncertainty, limited participation, and flight to quality

This study extends the multi-asset model of Huang et al.(2017),who examine only two types of investors,by adding a new investor type with partial information on the correlation coefficient and re-explores the limited participation phenomenon under correlation ambiguity.We investigate whether asset allocations depend on incomplete information under market equilibrium—specifically,whether investors with less information might hold greater equilibrium positions than investors with more information.We find that,as the true correlation coefficient(and the maximum correlation coefficient for ambiguity-averse investors)increases and asset quality increases,investors with less information escape from low-to high-quality assets,thus exhibiting a flight-to-quality trading pattern in equilibrium.