Related papers: Leverage efficiency
In this paper, the Kyle model of insider trading is extended by characterizing the trading volume with long memory and allowing the noise trading volatility to follow a general stochastic process. Under this newly revised model, the…
This paper addresses the portfolio selection problem for nonlinear law-dependent preferences in continuous time, which inherently exhibit time inconsistency. Employing the method of stochastic maximum principle, we establish verification…
In a fixed time horizon, appropriately executing a large amount of a particular asset -- meaning a considerable portion of the volume traded within this frame -- is challenging. Especially for illiquid or even highly liquid but also highly…
In biology and ecology, individuals or communities of individuals living in unpredictable environments often alternate between different evolutionary strategies to spread and reduce risks. Such behavior is commonly referred to as…
Leveraged Exchange Traded Funds (LETFs), while extremely controversial in the literature, remain stubbornly popular with both institutional and retail investors in practice. While the criticisms of LETFs are certainly valid, we argue that…
The optimal strategies for a long-term static investor are studied. Given a portfolio of a stock and a bond, we derive the optimal allocation of the capitols to maximize the expected long-term growth rate of a utility function of the…
This paper is devoted to the theoretical study of the efficiency, namely, stability of some greedy algorithms. In the greedy approximation theory researchers are mostly interested in the following two important properties of an algorithm --…
This paper studies the long-term growth rate of expected utility from holding a leveraged exchanged-traded fund (LETF), which is a constant proportion portfolio of the reference asset. Working with the power utility function, we develop an…
We investigate how and when to diversify capital over assets, i.e., the portfolio selection problem, from a signal processing perspective. To this end, we first construct portfolios that achieve the optimal expected growth in i.i.d.…
Econophysics and econometrics agree that there is a correlation between volume and volatility in a time series. Using empirical data and their distributions, we further investigate this correlation and discover new ways that volatility and…
Electric power systems are increasingly turning to energy storage systems to balance supply and demand. But how much storage is required? What is the optimal volume of storage in a power system and on what does it depend? In addition, what…
Optimal estimation of a coin's bias using noisy data is surprisingly different from the same problem with noiseless data. We study this problem using entropy risk to quantify estimators' accuracy. We generalize the "add Beta" estimators…
In this paper, we combine modern portfolio theory and option pricing theory so that a trader who takes a position in a European option contract and the underlying assets can construct an optimal portfolio such that at the moment of the…
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…
Standard approaches to the theory of financial markets are based on equilibrium and efficiency. Here we develop an alternative based on concepts and methods developed by biologists, in which the wealth invested in a financial strategy is…
In Electricity markets, illiquidity, transaction costs and market price characteristics prevent managers to replicate exactly contracts. A residual risk is always present and the hedging strategy depends on a risk criterion chosen. We…
In speculative markets, risk-free profit opportunities are eliminated by traders exploiting them. Markets are therefore often described as "informationally efficient", rapidly removing predictable price changes, and leaving only residual…
We construct and study market models admitting optimal arbitrage. We say that a model admits optimal arbitrage if it is possible, in a zero-interest rate setting, starting with an initial wealth of 1 and using only positive portfolios, to…
Considering that both the entropy-based market information and the Hurst exponent are useful tools for determining whether the efficient market hypothesis holds for a given asset, we study the link between the two approaches. We thus…
In an equity market model with "Knightian" uncertainty regarding the relative risk and covariance structure of its assets, we characterize in several ways the highest return relative to the market that can be achieved using nonanticipative…