This thesis is an investigation into the microeconomic mechanisms that govern some of the occupational choices faced by workers in Sub-Saharan Africa, and into the monetary and non-monetary returns to their decisions. Chapter 1 begins by exploring the decision process that leads workers to allocate themselves to different occupations within the economy. In particular, I investigate the role of risk-aversion in the allocation of workers between formal and informal jobs in Ghana, hence attempting to explain a fundamental dimension of duality through an investigation into workers' preferences. In my model of sectoral allocation risk-averse workers can opt between entering the free-entry informal sector and queuing for formal occupations. Conditional on identifying the riskier option, the model yields testable implications on the relationship between risk-aversion and workers' allocation. My testing strategy proceeds in two steps. First, using the first three waves of the Ghana Household Urban Panel Survey (GHUPS) dataset, I estimate expected income uncertainty and find it considerably higher in the informal sector than in formal employment. Second, using experimental data to elicit risk-attitudes I estimate the effect of risk-aversion on occupational choices and I find that, in line with the first result, more risk-averse workers are more likely to queue for formal jobs and less likely to be in the informal sector. The conclusion of the first chapter is that attitudes to risk should feature more prominently in models of sector allocation and in the design of labour market policies, in particular when those policies aim to impact workers' vulnerability to risk and uncertainty. Chapter 2 focuses on the largest occupational category in the Developing world, self-employed workers with small productive activities, and it tries to estimate the returns to different productive assets, namely physical capital, labour and human capital. These are the workers that form most of the informal sector analysed in chapter 1, which allows me to draw a direct link with the analysis so far. The chapter begins by specifying a model for the income-generating process grounded in the literature on firms' production and hence abridging the gap between the analysis of individual earnings and the study of firms' value added. Identification in the empirics is achieved by means of panel estimators that are suitable to address the endogeneity of input choices, which derives from both time-varying and time-invariant unobservable heterogeneity. The use of these estimators is made feasible by the length of the Ghanaian Household Urban Panel Survey dataset at CSAE. I also explore issues of endogeneity in the selection of different technologies, defined by their relative capital and labour intensity. Finally, I analyse the shape of returns to capital, with the aim to detect potential non-convexities in technology. The results show that capital and work-experience play the strongest role in income-generation, while the shares of value added attributed to labour and to formal schooling are low. Marginal returns to investment are high at low capital levels and they decrease very rapidly, pointing against the existence of non-convexities due to minimum scale requirements, but implying that real income gains resulting form micro-investment are modest. Chapter 3 returns to the issue of earnings uncertainty and risk-aversion explored in Chapter 1, but it now takes the allocation choice as given and explores the direct welfare implications of income uncertainty for worker's well-being. Namely, the chapter explores the relationship between income and welfare, with a particular attention on the link between income vulnerability and happiness. Using unique longitudinal data on life-satisfaction and labour market outcomes, I estimate an individual measure of vulnerability (defined as the probability of falling below a low-income threshold) and investigate its effect on well-being. After controlling for unobservable individual fixed effects, work-satisfaction, relative income and other relevant worker characteristics, I find a sizable impact of vulnerability, over and above the income effect. When I explore the mechanisms behind my results, I find that aspiration adaptation to current income may result in a transitory income effect. Moreover, using my direct measure of attitudes to risk from field-experiments (already used in chapter 1), I can test directly the hypothesis that more risk-averse agents suffer more heavily from a given increase in income vulnerability. Overall, my findings support policy interventions that aim to reduce vulnerability, as I expect such policies to have a 'direct' impact on agents' happiness given the prevailing attitudes to risk and uncertainty in the population. Finally, from the point of view of overall social welfare, my results suggest that non-Rawlsian growth models, whereby 'someone may be left behind', may fail to enhance general welfare, for high enough levels of risk-aversion in the population, if the risk of falling behind is sufficiently widespread.

De par leur nature scientifique, les sciences économiques visent, entre autre, à observer, qualifier, ainsi que quantifier des phénomènes économiques afin de pouvoir en dégager diverses prévisions. Ce mémoire se penche sur ces prévisions et, plus particulièrement, sur les facteurs pouvant biaiser les prévisionnistes au niveau comportemental en référant à l’effet d’ancrage, un biais propre à l’économie comportementale – une sous-discipline des sciences économiques. Il sera donc question de comprendre, par une analyse selon la discipline que représente l’économie comportementale, ce qui peut les affecter, avec un accent mis sur l’effet d’ancrage plus précisément. L’idée générale de ce dernier est qu’un agent peut être biaisé inconsciemment par la simple connaissance d’une valeur précédente lorsqu’il est demandé de faire une estimation ultérieure. De cette façon, une analyse des salaires des joueurs de la Ligne Nationale de Hockey (NHL) selon leurs performances passées et leurs caractéristiques personnelles, de 2007 à 2016, a été réalisée dans ce travail afin d’en dégager de possibles effets d’ancrage. Il est alors possible de constater que les directeurs généraux des équipes de la ligue agissent généralement de façon sensible et rationnelle lorsque vient le temps d’octroyer des contrats à des joueurs mais, néanmoins, une anomalie persiste lorsqu’on porte attention au rang auquel un joueur a été repêché. Dans un tel contexte, il semble pertinent de se référer à l’économie comportementale afin d’expliquer pourquoi le rang au repêchage reste une variable significative huit ans après l’entrée d’un joueur dans la NHL et qu’elle se comporte à l’inverse de ce que prévoit la théorie à ce sujet. / Economic analysis, by its nature, involves observing, qualifying and quantifying economic data with the ultimate goal of making forecasts. In this masters thesis, I am interested in factors that could bias a forecaster's behavior – with special focus on phenomena, like the anchoring effect, that have been proposed in behavioral economics. At a fundamental level, the anchoring effect states that an agent's ability to accurately forecast may be affected by placing unwarranted emphasis on certain economic variables. To study this effect, I analyze how the salaries of National Hockey League (NHL) players are determined by the players' characteristics and past performance. From the results, it would appear that NHL general managers are generally sensible and rational when it comes to using historical data to make decisions about player salaries. However, there is a persistent anomaly regarding the draft position of a player. Although one would not expect the draft position to be very important after eight years of experience in the NHL, the analysis shows that it is remains a significant determinant of player salary. Behavioral economics and more specifically, the anchoring effect, helps explain why this might be so.

This thesis focuses on the equity premium puzzle, risk-free rate puzzle and possible solutions of these two quantitative conundrums. Original formulation of both puzzles is introduced and comprehensive literature survey is presented to show the developments regarding this topic. These include risk-based explanations, non-risk based explanations and behavioral finance perspective. Main contribution of this study dwells in estimation of these two puzzles for the Czech Republic. Using consumption-based asset pricing model with time separable preferences, presence of the two puzzles is estimated employing annual Czech data from 1995 to 2011. The equity premium puzzle is not present in the Czech Republic, as the coefficient of risk aversion 5.57  . On the other hand, the risk-free rate puzzle is as severe as in developed economies. Furthermore, the individual time preference parameter  is estimated to be larger than one - a counterintuitive result suggesting consumers prefer unit of consumption tomorrow to unit of consumption today. Robustness of the results is confirmed when different proxy for a risk-free rate is used. Results do not change significantly and the risk-free rate puzzle persists. Direction for future research of the financial market puzzles in the Czech Republic is suggested.

Les périodes marquées par une aversion au risque intense sont souvent l’origine de distorsions notables dans les prix de marché, et de pertes substantielles pour les investisseurs. Chaque épisode de crise financière montre que les mouvements de ventes généralisées sur les marchés ont des conséquences très négatives sur l’économie réelle. Ainsi, explorer le phénomène d’aversion au risque et la dynamique de propagation du sentiment de panique sur les marchés financiers peut aider à appréhender ces périodes de forte volatilité.Dans ce rapport de thèse, nous explorons différentes dimensions du phénomène d’aversion au risque, dans le cadre de portefeuilles d’obligations souveraines Européennes. Le rendement des obligations d’Etat, quotté par les traders, est sensé refléter entre autre le risque que le Trésor fasse défaut sur sa dette, avant que l’obligation vienne à maturation. Il s’agit là du risque souverain. Les crises financières habituellement occasionnent un mouvement important des rendements vers des niveaux plus élevés. Ce type de correction reflète un accroissement du risque souverain, et implique nécessairement une hausse du coût de financement pour les Trésors nationaux. Un objectif de ce rapport est donc de fournir des détails inédits aux Trésors sur la manière dont les rendements obligataires sont sensés se détériorer en période d’aversion au risque.Chapitre I explore le risque souverain dans le cadre d’un modèle probabiliste impliquant des distributions à queues lourdes, ainsi que la méthode GAS qui permet de capturer la dynamique de la volatilité. L’ajustement obtenu avec les distributions Hyperboliques Généralisées est robuste, et les résultats laissent penser que notre approche est particulièrement efficace durant les périodes marquées par une volatilité erratique. Dans un but de simplification, nous décrivons la mise en place d’un estimateur de volatilité intemporel, sensé refléter la volatilité intrinsèque de chaque obligation. Cet estimateur suggère que la volatilité croit de manière quadratique lorsque celle-ci est exprimée en fonction de la fonction de répartition des variations de rendements. Dans un second temps nous explorons une version bivariée du modèle. La calibration, robuste, met en valeur les corrélations entre chaque obligation. En guise d’observation générale, notre analyse confirme que les distributions à queues épaisses sont tout à fait appropriées pour l’exploration des prix de marché en période de crise financière.Chapitre II explore différentes manières d’exploiter notre modèle probabiliste. Afin d’identifier la dynamique de la contagion entre les obligations souveraines, nous analysons la réaction attendue du marché à une série de chocs financiers. Nous considérons un niveau important de granularité pour ce qui est de la sévérité du choc sous-jacent, et ceci nous permet d’identifier des lois empiriques supposées généraliser le comportement de la réaction de marché lorsque l’aversion au risque s’intensifie. Puis, nous incorporons nos estimateurs de volatilité et de réaction de marché à certaines approches reconnues d’optimisation de portefeuille et nous notons une amélioration de la résistance des portefeuilles, dans cette nouvelle version. Finalement, nous développons une nouvelle méthodologie d’optimisation de portefeuille basée sur le principe de mean-reversion.Chapitre III est dédié au pricing de produits dérivés de taux. Nous considérons maintenant que l’aversion au risque cause l’émergence de discontinuités dans les prix de marché, que nous simulons par le biais de processus à sauts. Notre modèle se concentre sur les processus de Hawkes qui ont l’avantage de capturer la présence d’auto-excitation dans la volatilité. Nous développons une procédure de calibration qui se distingue des procédures habituelles. Les résultats de volatilité implicite sont cohérents avec la volatilité réalisée, et suggèrent que les coefficients de prime de risque ont été estimés avec succès. / Periods of deep risk aversion are usually marked by sizeable distortions in market prices, and substantial losses in portfolios. As observed during financial crises, a generalized debacle in financial markets is a very negative shock for the real economy. Against this backdrop, it looks relevant to explore how risk aversion tends to affect global market valuations, especially if this exercise helps make the promotion of more optimal portfolio rebalancing procedures.In this dissertation, we investigate different dimensions of risk aversion, with a focus on European Sovereign debt securities. For a given sovereign bond, the (quoted) yield to maturity has to reflect the underlying risk that the Treasury may default on its debt, before maturation of the bond. This is sovereign risk. Financial crises usually occasion an upward correction in bond yields. Since higher yields reflect larger sovereign risk and higher funding costs, national Treasuries are usually inclined to get a deeper understanding of how sovereign risk could evolve under the influence of fierce risk aversion. This is another objective of our research analysis.In Chapter I, we consider a probabilistic approach to sovereign risk exploration, with the main purpose of illustrating the non-linear reaction ensuing from a gradual deterioration in market sentiment. We consider heavy-tailed distributions, and we use the Generalised Autoregressive Score method as a means to capture the volatility momentum. The goodness of fit provided by Generalised Hyperbolic distributions is compelling, and results suggest that our approach is particularly relevant to fit periods or erratic volatility, typical of financial crises. As an attempt to simplify the model, we focus on an empirical formulation of the ‘untemporal’ volatility of each security. This estimator of the intrinsic volatility suggests that volatility tends to accelerate in a quadratic manner when it is expressed against the cumulative distribution function of the yield variations. In a second part, we extend this approach to a problem of larger dimension and we explore the dynamics of risk aversion from a bivariate point of view. Results look robust and illustrate multivariate correlations between sovereign securities. As a general conclusion, heavy-tailed distributions look remarkably efficient to replicate the distribution of times-series affected by distorted volatility and erratic price variations.Chapter II explores different ways to extract information from the model, about financial contagion and how it is supposed to propagate through sovereign securities. In particular, we explore the market reaction to a series of many shocks with gradual intensity. Results offer a high degree of granularity and we extrapolate empirical rules on the expected market dynamics, when risk aversion intensifies. Then we incorporate our estimators of volatility and market reaction (to shocks) into popular portfolio optimisation procedures and we see positive implications on the general resilience of these portfolios. Finally, we also design an in-house methodology for optimal portfolio rebalancing, based on mean reversion.In Chapter III, we explore how sovereign risk tends to affect the price of financial derivatives in a risk-off environment. We consider that risk aversion and the ensuing volatility now favour the emergence of sizeable discontinuities in market prices, that we model with stochastic jumps. The different approaches we investigate extensively rely on Hawkes processes. These stochastic processes seek to estimate the durable impact of risk aversion onto the dynamics of jumps, via the introduction of dedicated self-excited loops. We develop an original approach to the calibration, different from conventional procedures. In the end, the calculated implied volatility remains in the vicinity of the realised volatility and there is a visible capability to jump on any rise in risk aversion.

Die kumulative Dissertation beschäftigt sich mit stochastischen und deterministischen dynamischen Verkaufsmodellen für langlebige sowie verderbliche Güter. Die analysierten dynamischen Modelle sind durch die Möglichkeit der simultanen Variation von Preis und Werbung in stetiger Zeit charakterisiert und folgen den aktuellen Entwicklungen der Dynamischen Preissetzung. Dabei steht die Berücksichtigung und Analyse von (i) Zeitinhomogenitäten, (ii) Adoptionseffekten, (iii) Oligopolwettbewerb und (iv) der Risikoaversion des Entscheiders im Zentrum der Arbeit. Für die Spezialfälle isoelastischer und exponentieller Nachfrage in Verbindung mit isoelastischer Werbewirkung gelingt es explizite Lösungen der optimalen Preis- und Werbekontrollen herzuleiten. Die optimal gesteuerten Verkaufsprozesse können analytisch beschrieben und ausgewertet werden. Insbesondere werden neben erwarteten Preis- und Restbestandsentwicklungen auch assoziierte Gewinnverteilungen untersucht und Sensitivitätsresultate hergeleitet. Darüber hinaus wird analysiert unter welchen Bedingungen monopolistische Strategien sozial effizient sind und welche Besteuerungs- und Subventionsmechanismen geeignet sind um Effizienz herzustellen. Die Ergebnisse sind in sechs Artikel gefasst und bieten ökonomische Einsichten in verschiedene praktische Verkaufsanwendungen, speziell im Bereich des elektronischen Handels. / The cumulative dissertation deals with stochastic and deterministic dynamic sales models for durable as well as perishable products. The models analyzed are characterized by simultaneous dynamic pricing and advertising controls in continuous time and are in line with recent developments in dynamic pricing. They include the modeling of multi-dimensional decisions and take (i) time dependencies, (ii) adoption effects (iii), competitive settings and (iv) risk aversion, explicitly into account. For special cases with isoelastic demand functions as well as with exponential ones explicit solution formulas of the optimal pricing and advertising feedback controls are derived. Moreover, optimally controlled sales processes are analytically described. In particular, the distribution of profits, the expected evolution of prices as well as inventory levels are analyzed in detail and sensitivity results are obtained. Furthermore, we consider the question whether or not monopolistic policies are socially efficient; in special cases, we propose taxation/subsidy mechanisms to establish efficiency. The results are presented in six articles and provide economic insights into a variety of dynamic sales applications of the business world, especially in the area of e-commerce.

O dilema do prisioneiro (DP) é um dos principais jogos da teoria dos jogos. No dilema do prisioneiro discreto (DPD), dois prisioneiros têm as opções de cooperar ou desertar. Um jogador cooperador não delata seu comparsa, já um desertor delata. Se um cooperar e o outro desertar, o cooperador fica preso por cinco anos e o desertor fica livre. Se ambos cooperarem, ficam presos por um ano e, se ambos desertarem, ficam presos por três anos. Quando o DP é repetido, a cooperação pode emergir entre agentes egoístas. Realizamos um estudo analítico para o DPD, que produziu uma formulação da evolução do nível médio de cooperação e da tentação crítica (valor de tentação que causa mudança abrupta do nível de cooperação). No dilema do prisioneiro contínuo (DPC), cada jogador apresenta um nível de cooperação que define o grau de cooperação. Utilizamos o DPC para estudar o efeito da personalidade dos jogadores sobre a emergência da cooperação. Para isso, propusemos novas estratégias: uma baseada na personalidade dos jogadores e outras duas baseadas na comparação entre o ganho obtido e a aspiração do jogador. Todas as estratégias apresentavam algum mecanismo de cópia do estado do vizinho com maior ganho na vizinhança, mecanismo este, herdado da estratégia darwiniana. Os resultados mostraram que o DPC aumenta o nível médio de cooperação do sistema, quando comparado ao DPD. No entanto, as diferentes estratégias não aumentaram a cooperação comparado à cooperação obtida com a estratégia darwiniana. Então propusemos o uso do coeficiente de agrupamentos, coeficiente de Gini e entropias de Shannon, Tsallis e Kullback-Leibler para classificar os sistemas, em que os agentes jogam o DPD com a estratégia darwiniana, quanto ao nível de cooperação. Como analisamos valores de médias configuracionais, tais classificadores não foram eficientes ao classificar os sistemas. Isso é consequência da existência de distribuições de extremos nos resultados que compõem as médias. As distribuições de extremos suscitaram uma discussão acerca da definição do regime de cooperação no dilema do prisioneiro. Discutimos também as consequências de utilizar apenas valores médios nos resultados ignorando seus desvios e as distribuições. / Prisoner\'s dilemma (PD) is one of the main games of game theory. In discrete prisoner\'s dilemma (DPD), two prisoners have the options to cooperate or to defect. A cooperator player does not defect his accomplice, while a defector does. If one player cooperates and the other defects, the cooperator gets jailed for five years and the defector goes free. If both cooperate, they get jailed during one year and if both defect, they get jailed during three years. When this game is repeated, cooperation may emerge among selfish individuals. We perform an analytical study for the DPD, that produced a formulation for the evolution of the mean cooperation level and for the critical temptation values (temptation values that promote abrupt modifications in the cooperation level). In continuous prisoner\'s dilemma (CPD), each player has a level of cooperation that defines his/her degree of cooperation. We used the CPD to study the effect of the players\' personality on the emergence of cooperation. For this, we propose new strategies: one based on the players\' personality and two others based on the comparison between the player\'s obtained payoff and the desire one. All strategies present some mechanism that copies the state of the neighbor with the highest payoff in the neighborhood, mechanism inherited from the Darwinian strategy. The results showed that the CPD increases the average cooperation level of the system when compared to DPD. However, different strategies do not increased the cooperation compared to cooperation obtained with the Darwinian strategy. So, we propose the use of cluster coefficient, Gini coefficient and entropy of Shannon, Tsallis and Kullback-Leibler as classifiers to classify systems, in which the individuals play DPD with Darwinian strategy, by the cooperation level. As configurational averages were analyzed, such classifiers were not efficient in classifying the systems. This is due to the existence of distributions with extreme values of the results that compose the means. Distributions with extremes values emerged a discussion about the definition of the cooperation state in the prisoner\'s dilemma. We also discussed the consequences of using only average results in the analysis ignoring their deviations and distributions.

[pt] A globalização dos mercados financeiros das últimas décadas trouxe ao centro da discussão de finanças internacionais o conceito de risco-país. A importância do risco para a economia de um país está relacionada ao fato de que, em um ambiente de alta mobilidade de capital, ele acaba sendo um importante balizador da taxa de juros doméstica. Para que se possa compreender a evolução do risco de um país, medido pelo spread de seus títulos no mercado internacional, não basta entender a influência das características específicas dos países, mas é fundamental também avaliar o papel dos choques internacionais. Dentro deste arcabouço, o objetivo central desta dissertação é avaliar de maneira mais precisa o papel das variáveis externas na determinação dos spreads dos países emergentes. Mostraremos que para entender os choques externos sobre os spreads emergentes não basta observar os movimentos da taxa de juros livre de risco, como se supõe na literatura tradicional, mas também é preciso fazer considerações acerca da aversão ao risco dos investidores internacionais, e do contágio entre os países emergentes durante períodos de crise. / [en] The globalization in the financial markets during the last decades brought the concept of country risk to the center of the discussion in international finance. The importance of country risk is related to the fact that, in a high capital mobility environment, it becomes a important determinant of the domestic interest rate. To understand the evolution of the risk of a country, measured by the spread of its bonds in the international markets, it is important not only to comprehend the influence of its specific fundamentals, but also to evaluate the role of the external shocks. In this framework, the central goal of this dissertation is to evaluate more accurately the role of the external variables in the determination of the spreads of the emerging countries. It will be shown that to understand the external shocks it is not enough to observe only the movements of the free risk interest rate, as the traditional literature assume, but it is also necessary to take into account the risk aversion of the international investors, and the contagion between emerging economies during crisis time.

The purpose of this research was to explore the effects of small monetary or economic gains and/or losses on choice behavior through the use of a computerized game and to determine gain/loss ratio differences using both behavioral and electrophysiological measures. Participants (N=53) played the game in several 36 minute sessions. These sessions operated with concurrent variable-interval schedules for both rewards and penalties. Previously, asymmetrical effects of gains and losses have been identified through cognitive studies, primarily due to the work of nobel laureates Daniel Kahneman and Amos Tversky (1979). They found that the effect of a loss is twice (i.e., 2:1) that of a gain. Similar results have been observed in the behavioral laboratory as exemplified by the research of Rasmussen and Newland (2008), who found a 3:1 ratio for the effect of losses versus gains. The asymmetry of gains and losses was estimated behaviorally and through event-related brain potentials (ERPs) and the cognitive (Kahneman and Tversky) and behavioral (Rasmussen and Newland) discrepancy elucidated. In the game, the player moves an animated submarine around sea rocks to collect yellow coins and other treasures on the sea floor. Upon collecting a coin, one of three things can happen: The player triggers a penalty (loss), the player triggers a payoff (gain), or there is no change. The behavioral measures consisted in counting the number of clicks, reinforces, and punishers and then determining ratio differences between punished (loss) and no punished condition (gain) conditions. The obtained gain/loss ratio corresponded to an asymmetry of 2:1. Similarly ratio differences were found between male and female, virtual money and cash, risk averse versus risk seeking, and generosity versus profit behavior. Also, no ratio difference was found when players receive information about other player's performances in the game (players with information versus players without information). In electroencephalographic (EEG) studies, visual evoked potentials (VEPs) and ERPs components (e.g., P300) were examined. I found increased ERP amplitudes for the losses in relation to the gains that corresponded to the calculated behavioral asymmetry of 2:1. A correlational strategy was adopted that sought to identify neural correlates of choice consistent with cognitive and behavioral approaches. In addition, electro cortical ratio differences were observed between different sets of electrodes that corresponded to the front, middle, and back sections of the brain; differences between sessions, risk averse and risk seeking behavior and sessions with concurrent visual and auditory stimuli and only visual were also estimated.

已開發國家中，無論個人或是法人所擁有之財富大多透過金融中介機構管理，因此，財富委由他人管理衍生出現代資本市場中重要的委託關係。委託人與基金管理人產生委任契約時，也必然產生代理問題，即雙方利益不一致所額外增加的成本。為降低代理成本，於委任合約加入對管理人下檔投資風險的要求成為降低代理成本的重要機制。本研究因此探討當基金管理人面對契約存在最低報酬要求時，如何進行最適資產配置決策，並同時分析下檔風險限制改變時對管理人投資行為的影響。研究結果顯示，委任合約增加經理人最低保證收益時，基金管理人傾向增加持股，而經理人風險趨避程度增加時，將減少風險性股票資產，進而持有債券；如果投資目標收益於受委託期間皆不改變，將造成經理人持有債券組合以規避下檔風險，同時卻喪失追求資本利得。 / In most developed countries, financial wealth is not managed directly by the investors, but through a financial intermediary. Hence, the delegated portfolio management is one of the most important principal-agency relationships in the current economy. In addition to that, the principal-agency relationships between the investor and portfolio manager must produce agency cost. In order to reduce these costs, the mandates in the contract become an important factor in reducing the principal-agent problem in a delegated portfolio management framework. In this research, we study how fund managers do asset allocation when they face some guaranteed returns and the relationships between the choices of mandates and the behavior of fund managers. We suppose that the objective of the delegated fund managers is to maximize the expected utility of wealth of the long-term fund at the end of each period and fund managers also have to fulfill some constrains given at the beginning. Finally, we explain how fund managers do optimal asset allocation by our model and some numerical analysis.

Taiwan, an island with outstanding economic miracle, has deeply depended on international trades to increase economic growth and national wealth. There are many successful companies, including listed enterprises and SME, manufacturing and marketing Made-in-Taiwan products all over the world through international trade and commerce. Therefore, undoubtedly the power international trade is one of our strength and plays a key role on stimulating economy as well as elevating the living standard of people. . To compete with other international exporters, Taiwanese exporters must provide not only products with good quality and reasonable price, but also offer competitive payment terms to further strive for new clients and strengthen individual competitiveness. This is a recent trend of International Trade. From the risk-free payment term, such as- T/T Advance to O/A 90 days after shipment, Taiwanese exporters suffered both political risk and credit risk. Not to mention cash flow risk and exchange rate risk that normally appears during transaction. Remembered financial crisis in 2007, market failed and malfunctioned at that time. As for corporate side, individual companies faced difficulties of continuously operation. Some even seriously went bankruptcy during that time. In this circumstance, Taiwanese exporters, even successfully won the orders, could not receive the payment on time from foreign buyers. Some of them may even suffered huge loss because of intentional disputes or buyer’s closedown. Therefore, it goes without saying that risk aversion is becoming an important issue for Taiwanese companies to survive. There would be three major financial tools being introduced for risk aversion with three case studies. Each of them has its special features and functions by different needs. How and why does Taiwanese exporter choose and leverage for risk aversion will be explained and discussed. The purpose of this paper is to find out the solutions for Taiwanese exporters to reduce risk of international trade as well as increase competitiveness in the foreign trade and grow the economy as contribution in the long run.