Related papers: Introduction to Risk Parity and Budgeting

This paper introduces a novel methodology for index return forecasting, blending highly correlated stock prices, advanced deep learning techniques, and intricate factor integration. Departing from conventional cap-weighted approaches, our…

Given a reference risk measure, the risk budgeting is the portfolio where each asset contributes a predetermined amount to the total risk. We propose a novel approach, alternative to the ones proposed in the literature, for the calculation…

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…

We study the optimal investment problem for a homogeneous collective of $n$ individuals investing in a Black-Scholes model subject to longevity risk with Epstein--Zin preferences. %and with preferences given by power utility. We compute…

A so called Zipf analysis portofolio management technique is introduced in order to comprehend the risk and returns. Two portofoios are built each from a well known financial index. The portofolio management is based on two approaches: one…

In his famous paper, Markowitz (1952) derived the dependence of portfolio random returns on the random returns of its securities. This result allowed Markowitz to obtain his famous expression for portfolio variance. We show that Markowitz's…

Financial markets have developed a lot of strategies to control risks induced by market fluctuations. Mathematics has emerged as the leading discipline to address fundamental questions in finance as asset pricing model and hedging…

A continuous-time Markowitz's mean-variance portfolio selection problem is studied in a market with one stock, one bond, and proportional transaction costs. This is a singular stochastic control problem,inherently in a finite time horizon.…

Estimation error has plagued quantitative finance since Harry Markowitz launched modern portfolio theory in 1952. Using random matrix theory, we characterize a source of bias in the sample eigenvectors of financial covariance matrices.…

This paper studies a robust continuous-time Markowitz portfolio selection pro\-blem where the model uncertainty carries on the covariance matrix of multiple risky assets. This problem is formulated into a min-max mean-variance problem over…

In general insurance companies, a correct estimation of liabilities plays a key role due to its impact on management and investing decisions. Since the Financial Crisis of 2007-2008 and the strengthening of regulation, the focus is not only…

Since Markowitz's mean-variance framework, optimizing a portfolio that maximizes the profit and minimizes the risk has been ubiquitous in the financial industry. Initially, profit and risk were measured by the first two moments of the…

We introduce diversified risk parity embedded with various reward-risk measures and more generic allocation rules for portfolio construction. We empirically test the proposed reward-risk parity strategies and compare their performance with…

We propose an alternative linearization to the classical Markowitz quadratic portfolio optimization model, based on maximum drawdown. This model, which minimizes maximum portfolio drawdown, is particularly appealing during times of…

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…

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 work, we present an alternative passive investment strategy. The passive investment philosophy comes from the Efficient Market Hypothesis (EMH), and its adoption is widespread. If EMH is true, one cannot outperform market by…

As the cornerstone of modern portfolio theory, Markowitz's mean-variance optimization is considered a major model adopted in portfolio management. However, due to the difficulty of estimating its parameters, it cannot be applied to all…

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…

In the paper, we consider three quadratic optimization problems which are frequently applied in portfolio theory, i.e, the Markowitz mean-variance problem as well as the problems based on the mean-variance utility function and the quadratic…