Related papers: Introduction to Risk Parity and Budgeting
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…
Uncertainty is prevalent in engineering design, data-driven problems, and decision making broadly. Due to inherent risk-averseness and ambiguity about assumptions, it is common to address uncertainty by formulating and solving conservative…
It is widely recognized that when classical optimal strategies are applied with parameters estimated from data, the resulting portfolio weights are remarkably volatile and unstable over time. The predominant explanation for this is the…
In this paper, the mean-variance portfolio selection problem with Poisson jumps are studied, where the recursive utility is given by the solution to a backward stochastic differential equation with Poisson jumps. Both the maximum principle…
This paper was presented and written for two seminars: a national UK University Risk Conference and a Risk Management industry workshop. The target audience is therefore a cross section of Academics and industry professionals. The current…
We propose a novel approach to infer investors' risk preferences from their portfolio choices, and then use the implied risk preferences to measure the efficiency of investment portfolios. We analyze a dataset spanning a period of six…
Diversification is a cornerstone of robust portfolio construction, yet its application remains fraught with challenges due to model uncertainty and estimation errors. Practitioners often rely on sophisticated, proprietary heuristics to…
In this work, we study a dynamic portfolio optimization problem related to pairs trading, which is an investment strategy that matches a long position in one security with a short position in another security with similar characteristics.…
This study presents empirical evidence to support the validity of new definitions in financial markets. The author develops a new method to determine investors' risk attitudes in financial markets. The risk attitudes of investors in US…
After the shocking series of bankruptcies started in 2008, the public does not trust anymore the classical methods of assessing business risks. The global economic severe downturn caused demand for both developed and emerging economies'…
Sequential portfolio selection has attracted increasing interests in the machine learning and quantitative finance communities in recent years. As a mathematical framework for reinforcement learning policies, the stochastic multi-armed…
This article introduces a novel hybrid regime identification-forecasting framework designed to enhance multi-asset portfolio construction by integrating asset-specific regime forecasts. Unlike traditional approaches that focus on broad…
Optimal capital allocation between different assets is an important financial problem, which is generally framed as the portfolio optimization problem. General models include the single-period and multi-period cases. The traditional…
This work proposes a unified framework for portfolio allocation, covering both asset selection and optimization, based on a multiple-hypothesis predict-then-optimize approach. The portfolio is modeled as a structured ensemble, where each…
Put-call parity is risk-neutral at terminal payoff, but its enforcement is path-dependent and capital-using. I test whether the SPX and RUT carry gap is explained by OIS-based funding, volatility, trading-friction, and financial-condition…
Choosing a portfolio of risky assets over time that maximizes the expected return at the same time as it minimizes portfolio risk is a classical problem in Mathematical Finance and is referred to as the dynamic Markowitz problem (when the…
This paper considers the portfolio management problem of optimal investment, consumption and life insurance. We are concerned with time inconsistency of optimal strategies. Natural assumptions, like different discount rates for consumption…
We consider the problem of selecting a portfolio of assets that provides the investor a suitable balance of expected return and risk. With respect to the seminal mean-variance model of Markowitz, we consider additional constraints on the…
Portfolio optimization in real-world financial markets is notoriously difficult due to non-stationarity, noisy data, and high transaction costs. Standard predict-then-optimize methods first forecast returns and then solve for weights,…
The conventional wisdom of mean-variance (MV) portfolio theory asserts that the nature of the relationship between risk and diversification is a decreasing asymptotic function, with the asymptote approximating the level of portfolio…