Related papers: Measuring Portfolio Diversification
A major challenge in sparsity pattern estimation is that small modes are difficult to detect in the presence of noise. This problem is alleviated if one can observe samples from multiple realizations of the nonzero values for the same…
The problem of non-stationarity in financial markets is discussed and related to the dynamic nature of price volatility. A new measure is proposed for estimation of the current asset volatility. A simple and illustrative explanation is…
The portfolio optimization problem in which the variances of the return rates of assets are not identical is analyzed in this paper using the methodology of statistical mechanical informatics, specifically, replica analysis. We define two…
This paper investigates optimal portfolio strategies in a financial market where the drift of the stock returns is driven by an unobserved Gaussian mean reverting process. Information on this process is obtained from observing stock returns…
Gaussian mixture distributions are commonly employed to represent general probability distributions. Despite the importance of using Gaussian mixtures for uncertainty estimation, the entropy of a Gaussian mixture cannot be calculated…
The potential benefits of portfolio diversification have been known to investors for a long time. Markowitz (1952) suggested the seminal approach for optimizing the portfolio problem based on finding the weights as budget shares that…
We provided proof here that coefficient of variation (CV) is a direct measure of risk using an equation that has been derived here for the first time. We also presented a method to generate a stock CV based on return that strongly…
We propose an alternative approach towards cost mitigation in volatility-managed portfolios based on smoothing the predictive density of an otherwise standard stochastic volatility model. Specifically, we develop a novel variational Bayes…
This paper develops a new divergence that generalizes relative entropy and can be used to compare probability measures without a requirement of absolute continuity. We establish properties of the divergence, and in particular derive and…
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…
Risk contributions of portfolios form an indispensable part of risk adjusted performance measurement. The risk contribution of a portfolio, e.g., in the Euler or Aumann-Shapley framework, is given by the partial derivatives of a risk…
We present an approach to derivative exposure management based on subjective and implied probabilities. We suggest to maximize the valuation difference subject to risk constraints and propose a class of risk measures derived from the…
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…
We propose and study a simple model of dynamical redistribution of capital in a diversified portfolio. We consider a hypothetical situation of a portfolio composed of N uncorrelated stocks. Each stock price follows a multiplicative random…
For a long investment time horizon, it is preferable to rebalance the portfolio weights at intermediate times. This necessitates a multi-period market model in which portfolio optimization is usually done through dynamic programming.…
This study presents contemporaneous modeling of asset return and price range within the framework of stochastic volatility with leverage. A new representation of the probability density function for the price range is provided, and its…
We present the unified market-based description of returns and variances of the trades with shares of a particular security, of the trades with shares of all securities in the market, and of the trades with the market portfolio. We consider…
In the existing financial literature, entropy based ideas have been proposed in portfolio optimization, in model calibration for options pricing as well as in ascertaining a pricing measure in incomplete markets. The abstracted problem…
Parametric statistical methods play a central role in analyzing risk through its underlying frequency and severity components. Given the wide availability of numerical algorithms and high-speed computers, researchers and practitioners often…
Portfolio sorting is ubiquitous in the empirical finance literature, where it has been widely used to identify pricing anomalies. Despite its popularity, little attention has been paid to the statistical properties of the procedure. We…