Related papers: The Long Neglected Critically Leveraged Portfolio
We suggest an empirical model of investment strategy returns which elucidates the importance of non-Gaussian features, such as time-varying volatility, asymmetry and fat tails, in explaining the level of expected returns. Estimating the…
Explicit robust hedging strategies for convex or concave payoffs under a continuous semimartingale model with uncertainty and small transaction costs are constructed. In an asymptotic sense, the upper and lower bounds of the cumulative…
Growth-optimal portfolios are guaranteed to accumulate higher wealth than any other investment strategy in the long run. However, they tend to be risky in the short term. For serially uncorrelated markets, similar portfolios with more…
We develop the idea of using Monte Carlo sampling of random portfolios to solve portfolio investment problems. In this first paper we explore the need for more general optimization tools, and consider the means by which constrained random…
In this paper, we revisit the portfolio allocation problem with designated risk-budget [Qian, 2005]. We generalize the problem of arbitrary risk budgets with unequal correlations to one that includes return forecasts and transaction costs…
We examine machine learning and factor-based portfolio optimization. We find that factors based on autoencoder neural networks exhibit a weaker relationship with commonly used characteristic-sorted portfolios than popular dimensionality…
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…
In this article, we consider the problem of a bank's loan portfolio in the context of liquidity risk, while allowing for the limited liability protection enjoyed by the bank. Accordingly, we construct a novel loan portfolio model with…
This paper develops a unified framework that integrates behavioral distortions into rational portfolio optimization by extracting implied probability weighting functions (PWFs) from optimal portfolios modeled under Gaussian and…
We study the problem of optimal long term portfolio selection with a view to beat a benchmark. Two kinds of objectives are considered. One concerns the probability of outperforming the benchmark and seeks either to minimise the decay rate…
Almost twenty years ago, E.R. Fernholz introduced portfolio generating functions which can be used to construct a variety of portfolios, solely in the terms of the individual companies' market weights. I. Karatzas and J. Ruf recently…
In this paper we estimate the mean-variance portfolio in the high-dimensional case using the recent results from the theory of random matrices. We construct a linear shrinkage estimator which is distribution-free and is optimal in the sense…
In the world of modern financial theory, portfolio construction has traditionally operated under at least one of two central assumptions: the constraints are derived from a utility function and/or the multivariate probability distribution…
Standard, PCA-based factor analysis suffers from a number of well known problems due to the random nature of pairwise correlations of asset returns. We analyse an alternative based on ICA, where factors are identified based on their…
For an investor with constant absolute risk aversion and a long horizon, who trades in a market with constant investment opportunities and small proportional transaction costs, we obtain explicitly the optimal investment policy, its implied…
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 provide analytical results for a static portfolio optimization problem with two coherent risk measures. The use of two risk measures is motivated by joint decision-making for portfolio selection where the risk perception of the portfolio…
A refinement of Bennett's inequality is introduced which is strictly tighter than the classical bound. The new bound establishes the convergence of the average of independent random variables to its expected value. It also carefully…
Pearson correlation and mutual information based complex networks of the day-to-day returns of US S&P500 stocks between 1985 and 2015 have been constructed in order to investigate the mutual dependencies of the stocks and their nature. We…
We discuss the use of saddlepoint methods in the analysis of portfolios, with particular reference to credit portfolios. The objective is to proceed from a model of the loss distribution, given through probabilities, correlations and the…