Related papers: Optimal leverage from non-ergodicity
In this paper we investigate the expected terminal utility maximization approach for a dynamic stochastic portfolio optimization problem. We solve it numerically by solving an evolutionary Hamilton-Jacobi-Bellman equation which is…
This paper studies an $\alpha$-robust utility maximization problem where an investor faces an intractable claim -- an exogenous contingent claim with known marginal distribution but unspecified dependence structure with financial market…
Previous research has shown that for stock indices, the most likely time until a return of a particular size has been observed is longer for gains than for losses. We establish that this so-called gain/loss asymmetry is present also for…
Excessive leverage, i.e. the abuse of debt financing, is considered one of the primary factors in the default of financial institutions. Systemic risk results from correlations between individual default probabilities that cannot be…
The focal point of this paper is the so-called Kelly Criterion, a prescription for optimal resource allocation among a set of gambles which are repeated over time. The criterion calls for maximization of the expected value of the…
We investigate the performance of the Kelly rule in a setting in which the dynamics of the return is represented by a time change process. We find that in this general semi-martingale setting the Kelly rule does not maximize the average…
We consider the robust exponential utility maximization problem in discrete time: An investor maximizes the worst case expected exponential utility with respect to a family of nondominated probabilistic models of her endowment by…
This paper considers the portfolio management problem of optimal investment, consumption and life insurance. We are concerned with time inconsistency of optimal strategies. Natural assumptions, like different discount rates for consumption…
In this paper, we consider a discrete-time portfolio with $m \geq 2$ assets optimization problem which includes the rebalancing~frequency as an additional parameter in the maximization. The so-called Kelly Criterion is used as the…
This paper studies an optimal investing problem for a retiree facing longevity risk and living standard risk. We formulate the investing problem as a portfolio choice problem under a time-varying risk capacity constraint. We derive the…
We consider the estimation of the multi-period optimal portfolio obtained by maximizing an exponential utility. Employing Jeffreys' non-informative prior and the conjugate informative prior, we derive stochastic representations for the…
In classic Kelly gambling, bets are chosen to maximize the expected log growth of wealth, under a known probability distribution. Breiman provides rigorous mathematical proofs that Kelly strategy maximizes the rate of asset growth…
In the present paper, using a replica analysis, we examine the portfolio optimization problem handled in previous work and discuss the minimization of investment risk under constraints of budget and expected return for the case that the…
The leverage effect-- the correlation between an asset's return and its volatility-- has played a key role in forecasting and understanding volatility and risk. While it is a long standing consensus that leverage effects exist and improve…
This paper studies a type of periodic utility maximization for portfolio management in an incomplete market model, where the underlying price diffusion process depends on some external stochastic factors. The portfolio performance is…
From the Hamilton-Jacobi-Bellman equation for the value function we derive a non-linear partial differential equation for the optimal portfolio strategy (the dynamic control). The equation is general in the sense that it does not depend on…
In this review, we provide practical guidance on some of the main machine learning tools used in portfolio weight formation. This is not an exhaustive list, but a fraction of the ones used and have some statistical analysis behind it. All…
We study a robust portfolio optimization problem under model uncertainty for an investor with logarithmic or power utility. The uncertainty is specified by a set of possible L\'evy triplets; that is, possible instantaneous drift, volatility…
In this paper, we revisit the relationship between investors' utility functions and portfolio allocation rules. We derive portfolio allocation rules for asymmetric Laplace distributed $ALD(\mu,\sigma,\kappa)$ returns and compare them with…
Utility and risk are two often competing measurements on the investment success. We show that efficient trade-off between these two measurements for investment portfolios happens, in general, on a convex curve in the two dimensional space…