Francesca Beccacece

Functional ANOVA, ultramodularity and monotonicity: Applications in multiattribute utility theory

Utility function properties as monotonicity and concavity play a fundamental role in reflecting a decision-makers preference structure. These properties are usually characterized via partial derivatives. However, elicitation methods do not necessarily lead to twice-differentiable utility functions. Furthermore, while in a single-attribute context concavity fully reflects risk aversion, in multiattribute problems such correspondence is not one-to-one. We show that Tsetlin and Winklers multivariate risk attitudes imply ultramodularity of the utility function. We demonstrate that geometric properties of a multivariate utility function can be successfully studied by utilizing an integral function expansion (functional ANOVA). The necessary and sufficient conditions under which monotonicity and/or ultramodularity of single-attribute functions imply the monotonicity and/or ultramodularity of the corresponding multiattribute function under additive, preferential and mutual utility independence are then established without reliance on the utility function differentiability. We also investigate the relationship between the presence of interactions among the attributes of a multiattribute utility function and the decision-makers multivariate risk attitudes.

Survival Risk and Project Evaluation

This paper sketches a procedure for the evaluation of industrial projects under serious survival risk which at present is under testing in the business sector of energy.

Elicitation of multiattribute value functions through high dimensional model representations: Monotonicity and interactions

This work addresses the early phases of the elicitation of multiattribute value functions proposing a practical method for assessing interactions and monotonicity. We exploit the link between multiattribute value functions and the theory of high dimensional model representations. The resulting elicitation method does not state any a-priori assumption on an individual’s preference structure. We test the approach via an experiment in a riskless context in which subjects are asked to evaluate mobile phone packages that differ on three attributes. Keywords: Multiattribute Utility Theory; High Dimensional Model Representations; Value Function Elicitation; Sparse Grid Interpolation.

Immunization Strategies in Linear Models

A financial world is considered where an agent invests in a set of assets and partially funds the investment through debt. The yield from each asset and the cost of each liability linearly depend on the same set of random factors. An investment-funding strategy which provides a surely non-negative yield is searched for. The problem reduces to the inversion (in a generalized sense) of a matrix. From the toolbox of one-sided inversion some theorems are shown to provide the desired strategy. The case of the Moore-Penrose generalized inverse is also considered. It is shown that an approximate immunization strategy can be designed through the use of linear programming.

Brand valuation: a comparison of alternative models

We propose a brand valuation model, which merges objectivity with robust underlying quantitative structure, thus sharing a direct financial interpretation and providing risk analysis insights. An empirical analysis allows us to compare both numerical results and financial insights derived by analysts from the utilisation of the Hirose Methodology, the Royalty Method and the proposed model.

Enhancing Portfolio Diversification: Are Diamonds Forever?

Investments in real assets are appreciated to enhance the risk–return profile of investment portfolios. In this article, the authors investigate the diversification contribution of diamonds to a portfolio of financial assets, using data from 2002 to 2012, on behalf of the European investor. Applying Markowitz’s model, they compare diamonds with Italian real estate and also with German real estate, investigating under which circumstances diamonds enhance the diversification effect. In particular, they assess the influence of the 2008 financial crisis on the diversification effect provided by diamonds.