Related papers: The Long Neglected Critically Leveraged Portfolio
We consider the problem of optimizing a portfolio of financial assets, where the number of assets can be much larger than the number of observations. The optimal portfolio weights require estimating the inverse covariance matrix of excess…
The classical mean-variance framework characterizes portfolio risk solely through return variance and the covariance matrix, implicitly assuming that all relevant sources of risk are captured by second moments. In modern financial markets,…
In this paper, we propose a market model with returns assumed to follow a multivariate normal tempered stable distribution defined by a mixture of the multivariate normal distribution and the tempered stable subordinator. This distribution…
This paper studies the mean-variance optimal portfolio choice of an investor pre-committed to a deterministic investment policy in continuous time in a market with mean-reversion in the risk-free rate and the equity risk-premium. In the…
It is well established that in a market with inclusion of a risk-free asset the single-period mean-variance efficient frontier is a straight line tangent to the risky region, a fact that is the very foundation of the classical CAPM. In this…
A new methodology has been introduced to clean the correlation matrix of single stocks returns based on a constrained principal component analysis using financial data. Portfolios were introduced, namely "Fundamental Maximum Variance…
In this paper we consider a generalization of the Markowitz's Mean-Variance model under linear transaction costs and cardinality constraints. The cardinality constraints are used to limit the number of assets in the optimal portfolio. The…
The paper solves the problem of optimal portfolio choice when the parameters of the asset returns distribution, like the mean vector and the covariance matrix are unknown and have to be estimated by using historical data of the asset…
We study large and moderate deviations for a life insurance portfolio, without assuming identically distributed losses. The crucial assumption is that losses are bounded, and that variances are bounded below. From a standard large…
We consider the problem of finding the efficient frontier associated with the risk-return portfolio optimization model. We derive the analytical expression of the efficient frontier for a portfolio of N risky assets, and for the case when a…
We first study the properties of solutions of quadratic programs with linear equality constraints whose parameters are estimated from data in the high-dimensional setting where p, the number of variables in the problem, is of the same order…
Given two random realized returns on an investment, which is to be preferred? This is a fundamental problem in finance that has no definitive solution except in the case one investment always returns more than the other. In 1952 Markowitz…
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…
The limitations of the traditional mean-variance (MV) efficient frontier, as introduced by Markowitz (1952), have been extensively documented in the literature. Specifically, the assumptions of normally distributed returns or quadratic…
This paper studies a continuous-time market where an agent, having specified an investment horizon and a targeted terminal mean return, seeks to minimize the variance of the return. The optimal portfolio of such a problem is called…
In this paper we apply a heuristic method based on artificial neural networks in order to trace out the efficient frontier associated to the portfolio selection problem. We consider a generalization of the standard Markowitz mean-variance…
Markowitz laid the foundation of portfolio theory through the mean-variance optimization (MVO) framework. However, the effectiveness of MVO is contingent on the precise estimation of expected returns, variances, and covariances of asset…
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…
We consider the issue of solution uniqueness for portfolio optimization problem and its inverse for asset returns with a finite number of possible scenarios. The risk is assessed by deviation measures introduced by [Rockafellar et al.,…
This paper considers the mean variance portfolio management problem. We examine portfolios which contain both primary and derivative securities. The challenge in this context is due to portfolio's nonlinearities. The delta-gamma…