Related papers: Optimal leverage from non-ergodicity
Financial time series exhibit two different type of non linear correlations: (i) volatility autocorrelations that have a very long range memory, on the order of years, and (ii) asymmetric return-volatility (or `leverage') correlations that…
Recognizing that asset markets generally exhibit shared informational characteristics, we develop a portfolio strategy based on transfer learning that leverages cross-market information to enhance the investment performance in the market of…
This work initiates research into the problem of determining an optimal investment strategy for investors with different attitudes towards the trade-offs of risk and profit. The probability distribution of the return values of the stocks…
Robust optimization provides a principled framework for decision-making under uncertainty, with broad applications in finance, engineering, and operations research. In portfolio optimization, uncertainty in expected returns and covariances…
Sharpe ratio (sometimes also referred to as information ratio) is widely used in asset management to compare and benchmark funds and asset managers. It computes the ratio of the (excess) net return over the strategy standard deviation.…
In this paper we develop a statistical arbitrage trading strategy with two key elements in hi-frequency trading: stop-loss and leverage. We consider, as in Bertram (2009), a mean-reverting process for the security price with proportional…
Sharpe et al. proposed the idea of having an expected utility maximizer choose a probability distribution for future wealth as an input to her investment problem instead of a utility function. They developed a computer program, called The…
The main objective of this paper is to develop a martingale-type solution to optimal consumption--investment choice problems ([Merton, 1969] and [Merton, 1971]) under time-varying incomplete preferences driven by externalities such as…
In this paper, we consider a financial market with assets exposed to some risks inducing jumps in the asset prices, and which can still be traded after default times. We use a default-intensity modeling approach, and address in this…
It is common knowledge that leverage can increase the potential returns of an investment, at the expense of increased risk. For a passive investor in the stock market, leverage can be achieved using margin debt or leveraged-ETFs. We perform…
Optimal reinsurance when Value at Risk and expected surplus is balanced through their ratio is studied, and it is demonstrated how results for risk-adjusted surplus can be utilized. Simplifications for large portfolios are derived, and this…
This paper investigates performance attribution measures as a basis for constraining portfolio optimization. We employ optimizations that minimize expected tail loss and investigate both asset allocation (AA) and the selection effect (SE)…
In this paper, we consider a frequency-based portfolio optimization problem with $m \geq 2$ assets when the expected logarithmic growth (ELG) rate of wealth is used as the performance metric. With the aid of the notion called dominant…
Instead of controlling "symmetric" risks measured by central moments of investment return or terminal wealth, more and more portfolio models have shifted their focus to manage "asymmetric" downside risks that the investment return is below…
We consider the problem of optimal hedging in an incomplete market with an established pricing kernel. In such a market, prices are uniquely determined, but perfect hedges are usually not available. We work in the rather general setting of…
The Kelly or proportional allocation mechanism is a simple and efficient auction-based scheme that distributes an infinitely divisible resource proportionally to the agents bids. When agents are aware of the allocation rule, their…
A new framework for portfolio diversification is introduced which goes beyond the classical mean-variance approach and portfolio allocation strategies such as risk parity. It is based on a novel concept called portfolio dimensionality that…
We present a method for constructing the log-optimal portfolio using the well-calibrated forecasts of market values. Dawid's notion of calibration and the Blackwell approachability theorem are used for computing well-calibrated forecasts.…
In stochastic portfolio theory, a relative arbitrage is an equity portfolio which is guaranteed to outperform a benchmark portfolio over a finite horizon. When the market is diverse and sufficiently volatile, and the benchmark is the market…
In this paper, we propose a new class of optimization problems, which maximize the terminal wealth and accumulated consumption utility subject to a mean variance criterion controlling the final risk of the portfolio. The multiple-objective…