I joined the University of Exeter Business School as a lecturer in 2020. Prior to this appointment, I was a Chapman Fellow in Mathematics at Imperial College London. I also held a postdoctoral position at the Cambridge Endowment for Research in Finance, University of Cambridge.
I work at the interface among finance, economics and mathematics. My current research interests include portfolio selection, behavioural finance, market frictions projects you have been involved in previously, positions held (at the University, on publications, committees), awards / grants received, PhD supervision, any other key points about your work / experience / achievements you would like to include. and mathematical finance. My research is regularly published in internationally renowned journals such as Journal of Economic Theory, Mathematical Finance and Finance & Stochastics.
From 2010 to 2013, I was an equity derivatives trader at the Australia and New Zealand Banking Group Limited responsible for flow trading of structured products on Asian underlyings.
Nationality: British National (Overseas)
Administrative responsibilities: Academic misconduct officer
Qualifications
- PhD (Warwick)
- MSc (Warwick)
- BSc (HKUST)
Links
Research interests
- Portfolio selection
- Behavioural finance
- Mathematical finance
Key publications | Publications by category | Publications by year
Publications by category
Journal articles
Tse ASL, Lambrecht BM (In Press). Liquidation, bailout, and bail-in: Insolvency resolution mechanisms and bank lending.
Journal of Financial and Quantitative Analysis Full text.
Tse ASL (2020). Dividend policy and capital structure of a defaultable firm.
Mathematical Finance,
30(3), 961-994.
Abstract:
Dividend policy and capital structure of a defaultable firm
Default risk significantly affects the corporate policies of a firm. We develop a model in which a limited liability entity subject to default at an exponential random time jointly sets its dividend policy and capital structure to maximize the expected lifetime utility from consumption of risk-averse equity investors. We give a complete characterization of the solution to the singular stochastic control problem. The optimal policy involves paying dividends to keep the ratio of firm's equity value to investors' wealth below a critical threshold. Dividend payout acts as a precautionary channel to transfer wealth from the firm to investors for mitigation of losses in the event of default. Higher the default risk, more aggressively the firm leverages and pays dividends.
Abstract.
DOI.
Hobson D, Tse ASL, Zhu Y (2019). A multi-asset investment and consumption problem with transaction costs.
Finance and Stochastics,
23(3), 641-676.
Abstract:
A multi-asset investment and consumption problem with transaction costs
In this article, we study a multi-asset version of the Merton investment and consumption problem with CRRA utility and proportional transaction costs. We specialise to a case where transaction costs are zero except for sales and purchases of a single asset which we call the illiquid asset. We show that the underlying HJB equation can be transformed into a boundary value problem for a first order differential equation. Important properties of the multi-asset problem (including when the problem is well-posed, ill-posed, or well-posed for some values of transaction costs only) can be inferred from the behaviours of a quadratic function of a single variable and another algebraic function.
Abstract.
DOI.
Hobson D, Tse ASL, Zhu Y (2019). Optimal consumption and investment under transaction costs.
Mathematical Finance,
29(2), 483-506.
Abstract:
Optimal consumption and investment under transaction costs*
In this paper, we consider the Merton problem in a market with a single risky asset and proportional transaction costs. We give a complete solution of the problem up to the solution of a first-crossing problem for a first-order differential equation. We find that the characteristics of the solution (e.g. well-posedness) can be related to some simple properties of a univariate quadratic whose coefficients are functions of the parameters of the problem. Our solution to the problem via the value function includes expressions for the boundaries of the no-transaction wedge. Using these expressions, we prove a precise condition for when leverage occurs. One new and unexpected result is that when the solution to the Merton problem (without transaction costs) involves a leveraged position, and when transaction costs are large, the location of the boundary at which sales of the risky asset occur is independent of the transaction cost on purchases.
Abstract.
DOI.
Henderson V, Hobson D, Tse ASL (2018). Probability weighting, stop-loss and the disposition effect.
Journal of Economic Theory,
178, 360-397.
Abstract:
Probability weighting, stop-loss and the disposition effect
In this paper we study a continuous-time, optimal stopping model of an asset sale with prospect theory preferences under pre-commitment. We show for a wide range of value and probability weighting functions, including those of Tversky and Kahneman (1992), that the optimal prospect takes the form of a stop-loss threshold and a distribution over gains. It is skewed with a long right tail. This is consistent with both the widespread use of stop-loss strategies in financial markets, and recent experimental evidence. Moreover, our model with probability weighting in tandem with the S-shaped value function makes predictions for the disposition effect which match in magnitude that calculated by Odean (1998).
Abstract.
DOI.
Henderson V, Hobson D, Tse ASL (2017). Randomized strategies and prospect theory in a dynamic context.
Journal of Economic Theory,
168, 287-300.
Abstract:
Randomized strategies and prospect theory in a dynamic context
When prospect theory (PT) is applied in a dynamic context, the probability weighting component brings new challenges. We study PT agents facing optimal timing decisions and consider the impact of allowing them to follow randomized strategies. In a continuous-time model of gambling and optimal stopping, Ebert and Strack (2015) show that a naive PT investor with access only to pure strategies never stops. We show that allowing randomization can significantly alter the predictions of their model, and can result in voluntary cessation of gambling.
Abstract.
DOI.
Publications by year
In Press
Tse ASL, Lambrecht BM (In Press). Liquidation, bailout, and bail-in: Insolvency resolution mechanisms and bank lending.
Journal of Financial and Quantitative Analysis Full text.
2020
Tse ASL (2020). Dividend policy and capital structure of a defaultable firm.
Mathematical Finance,
30(3), 961-994.
Abstract:
Dividend policy and capital structure of a defaultable firm
Default risk significantly affects the corporate policies of a firm. We develop a model in which a limited liability entity subject to default at an exponential random time jointly sets its dividend policy and capital structure to maximize the expected lifetime utility from consumption of risk-averse equity investors. We give a complete characterization of the solution to the singular stochastic control problem. The optimal policy involves paying dividends to keep the ratio of firm's equity value to investors' wealth below a critical threshold. Dividend payout acts as a precautionary channel to transfer wealth from the firm to investors for mitigation of losses in the event of default. Higher the default risk, more aggressively the firm leverages and pays dividends.
Abstract.
DOI.
2019
Hobson D, Tse ASL, Zhu Y (2019). A multi-asset investment and consumption problem with transaction costs.
Finance and Stochastics,
23(3), 641-676.
Abstract:
A multi-asset investment and consumption problem with transaction costs
In this article, we study a multi-asset version of the Merton investment and consumption problem with CRRA utility and proportional transaction costs. We specialise to a case where transaction costs are zero except for sales and purchases of a single asset which we call the illiquid asset. We show that the underlying HJB equation can be transformed into a boundary value problem for a first order differential equation. Important properties of the multi-asset problem (including when the problem is well-posed, ill-posed, or well-posed for some values of transaction costs only) can be inferred from the behaviours of a quadratic function of a single variable and another algebraic function.
Abstract.
DOI.
Hobson D, Tse ASL, Zhu Y (2019). Optimal consumption and investment under transaction costs.
Mathematical Finance,
29(2), 483-506.
Abstract:
Optimal consumption and investment under transaction costs*
In this paper, we consider the Merton problem in a market with a single risky asset and proportional transaction costs. We give a complete solution of the problem up to the solution of a first-crossing problem for a first-order differential equation. We find that the characteristics of the solution (e.g. well-posedness) can be related to some simple properties of a univariate quadratic whose coefficients are functions of the parameters of the problem. Our solution to the problem via the value function includes expressions for the boundaries of the no-transaction wedge. Using these expressions, we prove a precise condition for when leverage occurs. One new and unexpected result is that when the solution to the Merton problem (without transaction costs) involves a leveraged position, and when transaction costs are large, the location of the boundary at which sales of the risky asset occur is independent of the transaction cost on purchases.
Abstract.
DOI.
2018
Henderson V, Hobson D, Tse ASL (2018). Probability weighting, stop-loss and the disposition effect.
Journal of Economic Theory,
178, 360-397.
Abstract:
Probability weighting, stop-loss and the disposition effect
In this paper we study a continuous-time, optimal stopping model of an asset sale with prospect theory preferences under pre-commitment. We show for a wide range of value and probability weighting functions, including those of Tversky and Kahneman (1992), that the optimal prospect takes the form of a stop-loss threshold and a distribution over gains. It is skewed with a long right tail. This is consistent with both the widespread use of stop-loss strategies in financial markets, and recent experimental evidence. Moreover, our model with probability weighting in tandem with the S-shaped value function makes predictions for the disposition effect which match in magnitude that calculated by Odean (1998).
Abstract.
DOI.
2017
Henderson V, Hobson D, Tse ASL (2017). Randomized strategies and prospect theory in a dynamic context.
Journal of Economic Theory,
168, 287-300.
Abstract:
Randomized strategies and prospect theory in a dynamic context
When prospect theory (PT) is applied in a dynamic context, the probability weighting component brings new challenges. We study PT agents facing optimal timing decisions and consider the impact of allowing them to follow randomized strategies. In a continuous-time model of gambling and optimal stopping, Ebert and Strack (2015) show that a naive PT investor with access only to pure strategies never stops. We show that allowing randomization can significantly alter the predictions of their model, and can result in voluntary cessation of gambling.
Abstract.
DOI.
My teaching expertise lies in the more technical areas of finance at postgraduate level. Modules that I have taught previously include financial economics, derivatives pricing and numerical methods for finance.
In addition, I have also supervised students’ projects/dissertations in the following topics: behavioural finance, volatility trading, deep learning for derivatives pricing, reinforcement learning for portfolio optimisation, etc.
Modules
2021/22
