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Connectivity - or the lack thereof - is crucial for the function of many man-made systems, from financial and economic networks over epidemic spreading in social networks to technical infrastructure. Often, connections are deliberately…
We present a simulation-and-regression method for solving dynamic portfolio allocation problems in the presence of general transaction costs, liquidity costs and market impacts. This method extends the classical least squares Monte Carlo…
We theoretically and empirically study portfolio optimization under transaction costs and establish a link between turnover penalization and covariance shrinkage with the penalization governed by transaction costs. We show how the ex ante…
This letter explores the behavior of conditional correlations among main cryptocurrencies, stock and bond indices, and gold, using a generalized DCC class model. From a portfolio management point of view, asset correlation is a key metric…
We revisit the problem of portfolio selection, where an investor maximizes utility subject to a risk constraint. Our framework is very general and accommodates a wide range of utility and risk functionals, including non-concave utilities…
This paper studies the response of stock markets relative to the banking sector to innovation by using a panel of 75 countries from 1982 to 2021. We find that innovation increases the activity, efficiency and size of stock markets relative…
The investor is interested in the expected return and he is also concerned about the risk and the uncertainty assumed by the investment. One of the most popular concepts used to measure the risk and the uncertainty is the variance and/or…
Risk control and optimal diversification constitute a major focus in the finance and insurance industries as well as, more or less consciously, in our everyday life. We present a discussion of the characterization of risks and of the…
Fluctuation scaling is observed phenomenon from complex networks through finance to ecology. It means that the variance and the mean of a specific quantity are related as $\ev{\sigma^2|n}\propto \ev{n|A}^{2\alpha}$ with $1/2\geq \alpha \geq…
This paper studies the income fluctuation problem with capital income risk (i.e., dispersion in the rate of return to wealth). Wealth returns and labor earnings are allowed to be serially correlated and mutually dependent. Rewards can be…
Complex systems are usually non-stationary and their dynamics is often dominated by collective effects. Collectivity, defined as coherent motion of the whole system or of some of its parts, manifests itself in the time-dependent structures…
We develop and implement methods for determining whether relaxing sparsity constraints on portfolios improves the investment opportunity set for risk-averse investors. We formulate a new estimation procedure for sparse second-order…
This paper studies some unconventional utility maximization problems when the ratio type relative portfolio performance is periodically evaluated over an infinite horizon. Meanwhile, the agent is prohibited from short-selling stocks. Our…
Portfolio diversification is a cornerstone of modern finance, while risk aversion is central to decision theory; both concepts are long-standing and foundational. We investigate their connections by studying how different forms of…
We study the properties of macroeconomic survey forecast response averages as the number of survey respondents grows. Such averages are ``portfolios" of forecasts. We characterize the speed and pattern of the gains from diversification as a…
We are interested in investigating the statistical properties of extreme values for strongly correlated variables. The starting motivation is to understand how the strong-correlation properties of power-law distributed processes affect the…
We examine optimal regulation of financial networks with debt interdependencies between financial firms. We first show that firms often have an incentive to choose excessively risky portfolios and overly correlate their portfolios with…
The dynamics of the equal-time cross-correlation matrix of multivariate financial time series is explored by examination of the eigenvalue spectrum over sliding time windows. Empirical results for the S&P 500 and the Dow Jones Euro Stoxx 50…
According to recent findings [1,2], empirical covariance matrices deduced from financial return series contain such a high amount of noise that, apart from a few large eigenvalues and the corresponding eigenvectors, their structure can…
Computing risk measures of a financial portfolio comprising thousands of derivatives is a challenging problem because (a) it involves a nested expectation requiring multiple evaluations of the loss of the financial portfolio for different…