Related papers: Notional portfolios and normalized linear returns
The Markowitz mean-variance portfolio optimization model aims to balance expected return and risk when investing. However, there is a significant limitation when solving large portfolio optimization problems efficiently: the large and dense…
In this paper, a heuristic method based on TabuSearch and TokenRing Search is being used in order to solve the Portfolio Optimization Problem. The seminal mean-variance model of Markowitz is being considered with the addition of cardinality…
In this paper we derive the exact solution of the multi-period portfolio choice problem for an exponential utility function under return predictability. It is assumed that the asset returns depend on predictable variables and that the joint…
Markowitz mean-variance portfolios with sample mean and covariance as input parameters feature numerous issues in practice. They perform poorly out of sample due to estimation error, they experience extreme weights together with high…
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…
Classical mean-variance portfolio theory tells us how to construct a portfolio of assets which has the greatest expected return for a given level of return volatility. Utility theory then allows an investor to choose the point along this…
Selecting the optimal Markowitz porfolio depends on estimating the covariance matrix of the returns of $N$ assets from $T$ periods of historical data. Problematically, $N$ is typically of the same order as $T$, which makes the sample…
It is well known that there are asymmetric dependence structures between financial returns. In this paper we use a new nonparametric measure of local dependence, the local Gaussian correlation, to improve portfolio allocation. We extend the…
The Markowitz model is still the cornerstone of modern portfolio theory. In particular, when focusing on the minimum-variance portfolio, the covariance matrix or better its inverse, the so-called precision matrix, is the only input…
We derive simple return models for several classes of bond portfolios. With only one or two risk factors our models are able to explain most of the return variations in portfolios of fixed rate government bonds, inflation linked government…
We describe an optimization-based tax-aware portfolio construction method that adds tax liability to standard Markowitz-based portfolio construction. Our method produces a trade list that specifies the number of shares to buy of each asset…
Value-at-Risk (VaR) and Conditional Value-at-Risk (CVaR) are popular risk measures from academic, industrial and regulatory perspectives. The problem of minimizing CVaR is theoretically known to be of Neyman-Pearson type binary solution. We…
We consider monotone mean-variance (MMV) portfolio selection problems with a conic convex constraint under diffusion models, and their counterpart problems under mean-variance (MV) preferences. We obtain the precommitted optimal strategies…
In this paper, both dynamic mean-variance portfolio selection problems and dynamic variance hedging problems are discussed under non-Markovian framework. Explicit closed-loop equilibrium strategies of these problems are respectively…
This paper considers the mean-reverting portfolio design problem arising from statistical arbitrage in the financial markets. We first propose a general problem formulation aimed at finding a portfolio of underlying component assets by…
We consider how to optimally allocate investments in a portfolio of competing technologies using the standard mean-variance framework of portfolio theory. We assume that technologies follow the empirically observed relationship known as…
Investment returns naturally reside on irregular domains, however, standard multivariate portfolio optimization methods are agnostic to data structure. To this end, we investigate ways for domain knowledge to be conveniently incorporated…
Investment approaches in financial instruments have been varied and often produce unpredictable results. Many investors in the earlier days of investment banking suffered catastrophical losses due to poor strategy and lack of understanding…
While investment funds publicly disclose their objectives in broad terms, their managers optimize for complex combinations of competing goals that go beyond simple risk-return trade-offs. Traditional approaches attempt to model this through…
We consider the problem of choosing an optimal portfolio, assuming the asset returns have a Gaussian mixture (GM) distribution, with the objective of maximizing expected exponential utility. In this paper we show that this problem is…