Related papers: Optimal leverage from non-ergodicity
We propose a novel portfolio selection approach that manages to ease some of the problems that characterise standard expected utility maximisation. The optimal portfolio is no longer defined as the extremum of a suitably chosen utility…
In an incomplete market, including liquidly-traded European options in an investment portfolio could potentially improve the expected terminal utility for a risk-averse investor. However, unlike the Sharpe ratio, which provides a concise…
Under mean-variance-utility framework, we propose a new portfolio selection model, which allows wealth and time both have influences on risk aversion in the process of investment. We solved the model under a game theoretic framework and…
This paper studies an optimal investment and consumption problem with heterogeneous consumption of basic and luxury goods, together with the choice of time for retirement. The utility for luxury goods is not necessarily a concave function.…
A drawdown constraint forces the current wealth to remain above a given function of its maximum to date. We consider the portfolio optimisation problem of maximising the long-term growth rate of the expected utility of wealth subject to a…
The Sharpe ratio is a way to compare the excess returns (over the risk free asset) of portfolios for each unit of volatility that is generated by a portfolio. In this paper we introduce a robust Sharpe ratio portfolio under the assumption…
We study the Merton portfolio management problem within a complete market, non constant time discount rate and general utility framework. The non constant discount rate introduces time inconsistency which can be solved by introducing sub…
The growth-optimal portfolio optimization strategy pioneered by Kelly is based on constant portfolio rebalancing which makes it sensitive to transaction fees. We examine the effect of fees on an example of a risky asset with a binary return…
This paper considers the optimal portfolio selection problem in a dynamic multi-period stochastic framework with regime switching. The risk preferences are of exponential (CARA) type with an absolute coefficient of risk aversion which…
Utility based methods provide a very general theoretically consistent approach to pricing and hedging of securities in incomplete financial markets. Solving problems in the utility based framework typically involves dynamic programming,…
We propose a new volatility model based on two stylized facts of the volatility in the stock market: clustering and leverage effect. We calibrate our model parameters, in the leading order, with 77 years Dow Jones Industrial Average data.…
We study the excess growth rate -- a fundamental logarithmic functional arising in portfolio theory -- from the perspective of information theory. We show that the excess growth rate can be connected to the R\'{e}nyi and cross entropies,…
In portfolio analysis, the traditional approach of replacing population moments with sample counterparts may lead to suboptimal portfolio choices. I show that optimal portfolio weights can be estimated using a machine learning (ML)…
We study investment and insurance demand decisions for an agent in a theoretical continuous-time expected utility maximization model that combines risky assets with an (exogenous) insurable background risk. This risk takes the form of a…
We study a continuous-time expected utility maximization problem in which the investor at maturity receives the value of a contingent claim in addition to the investment payoff from the financial market. The investor knows nothing about the…
Linear response theory, the backbone of non-equilibrium statistical physics, has recently been extended to explain how and why non-ergodic renewal processes are insensitive to simple perturbations, such as in habituation. It was established…
This paper introduces a novel stochastic control framework to enhance the capabilities of automated investment managers, or robo-advisors, by accurately inferring clients' investment preferences from past activities. Our approach leverages…
This paper investigates portfolio selection within a continuous-time financial market with regime-switching and beliefs-dependent utilities. The market coefficients and the investor's utility function both depend on the market regime, which…
In this paper, we study an intertemporal utility maximization problem in which an investor chooses consumption and portfolio strategies in the presence of a stochastic factor and a no-borrowing constraint. In the spirit of the Kim-Omberg…
We consider the problem of optimizing a portfolio of financial assets, where the number of assets can be much larger than the number of observations. The optimal portfolio weights require estimating the inverse covariance matrix of excess…