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This survey reviews portfolio choice in settings where investment opportunities are stochastic due to, e.g., stochastic volatility or return predictability. It is explained how to heuristically compute candidate optimal portfolios using…
Using a rolling windows analysis of filtered and aligned stock index returns from 40 countries during the period 2006-2014, we construct Granger causality networks and investigate the ensuing structure of the relationships by studying…
We propose a novel method to improve estimation of asset returns for portfolio optimization. This approach first performs a monthly directional market forecast using an online decision tree. The decision tree is trained on a novel set of…
The effect of proportional transaction costs on systematically generated portfolios is studied empirically. The performance of several portfolios (the index tracking portfolio, the equally-weighted portfolio, the entropy-weighted portfolio,…
Recent studies of cluster distribution in various ecosystems revealed Pareto statistics for the size of spatial colonies. These results were supported by cellular automata simulations that yield robust criticality for endogenous pattern…
This paper suggests that business cycles may be a manifestation of coupled real economy and stock market dynamics and describes a mechanism that can generate economic fluctuations consistent with observed business cycles. To this end, we…
In this paper, we revisit the relationship between investors' utility functions and portfolio allocation rules. We derive portfolio allocation rules for asymmetric Laplace distributed $ALD(\mu,\sigma,\kappa)$ returns and compare them with…
Nested stochastic modeling has been on the rise in many fields of the financial industry. Such modeling arises whenever certain components of a stochastic model are stochastically determined by other models. There are at least two main…
The role of portfolio construction in the implementation of equity market neutral factors is often underestimated. Taking the classical momentum strategy as an example, we show that one can significantly improve the main strategy's features…
In a continuous time stochastic economy, this paper considers the problem of consumption and investment in a financial market in which the representative investor exhibits a change in the discount rate. The investment opportunities are a…
The paper [12] examines a concept of equilibrium policies instead of optimal controls in stochastic optimization to analyze a mean-variance portfolio selection problem. We follow the same approach in order to investigate the Merton…
We analyze the stability of financial investment networks, where financial institutions hold overlapping portfolios of assets. We consider the effect of portfolio diversification and heterogeneous investments using a random matrix dynamical…
Fundamental variables in financial market are not only price and return but a very important role is also played by trading volumes. Here we propose a new multivariate model that takes into account price returns, logarithmic variation of…
We present a novel methodology to quantify the "impact" of and "response" to market shocks. We apply shocks to a group of stocks in a part of the market, and we quantify the effects in terms of average losses on another part of the market…
We study the evolution of probability distribution functions of returns, from the tick data of the Korean treasury bond (KTB) futures and the S$&$P 500 stock index, which can be described by means of the Fokker-Planck equation. We show that…
Modeling the evolution of a financial index as a stochastic process is a problem awaiting a full, satisfactory solution since it was first formulated by Bachelier in 1900. Here it is shown that the scaling with time of the return…
The instability of historical risk factor correlations renders their use in estimating portfolio risk extremely questionable. In periods of market stress correlations of risk factors have a tendency to quickly go well beyond estimated…
This study empirically re-examines fat tails in stock return distributions by applying statistical methods to an extensive dataset taken from the Korean stock market. The tails of the return distributions are shown to be much fatter in…
Fluctuations in stock prices are influenced by a complex interplay of factors that go beyond mere historical data. These factors, themselves influenced by external forces, encompass inter-stock dynamics, broader economic factors, various…
We consider the problem of the statistical uncertainty of the correlation matrix in the optimization of a financial portfolio. We show that the use of clustering algorithms can improve the reliability of the portfolio in terms of the ratio…