Related papers: Optimization of relative arbitrage
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…
We consider a stochastic factor financial model where the asset price process and the process for the stochastic factor depend on an observable Markov chain and exhibit an affine structure. We are faced with a finite time investment horizon…
The numeraire portfolio in a financial market is the unique positive wealth process that makes all other nonnegative wealth processes, when deflated by it, supermartingales. The numeraire portfolio depends on market characteristics, which…
We examine the problem of optimal portfolio allocation within the framework of utility theory. We apply exponential utility to derive the optimal diversification strategy and logarithmic utility to determine the optimal leverage. We enhance…
Empirical evidence suggests that even the most competitive markets are not strictly efficient. Price histories can be used to predict near future returns with a probability better than random chance. Many markets can be considered as {\it…
Classical portfolio optimization methods typically determine an optimal capital allocation through the implicit, yet critical, assumption of statistical time-invariance. Such models are inadequate for real-world markets as they employ…
Algorithmic trading or Financial robots have been conquering the stock markets with their ability to fathom complex statistical trading strategies. But with the recent development of deep learning technologies, these strategies are becoming…
This paper investigates arbitrage properties of financial markets under distributional uncertainty using Wasserstein distance as the ambiguity measure. The weak and strong forms of the classical arbitrage conditions are considered. A…
Market efficiency at least requires the absence of weak arbitrage opportunities, but this is not sufficient to establish a situation where the market is sensitive, i.e., where it "fully reflects" or "rapidly adjusts to" some information…
In this paper, we consider the basic problem of portfolio construction in financial engineering, and analyze how market-based and analytical approaches can be combined to obtain efficient portfolios. As a first step in our analysis, we…
A quadratic discrete time probabilistic model, for optimal portfolio selection in (re-)insurance is studied. For positive values of underwriting levels, the expected value of the accumulated result is optimized, under constraints on its…
We study a mean-field version of rank-based models of equity markets such as the Atlas model introduced by Fernholz in the framework of Stochastic Portfolio Theory. We obtain an asymptotic description of the market when the number of…
We study a continuous-time portfolio optimization problem under an explicit constraint on the Deviation Conditional Value-at-Risk (DCVaR), defined as the difference between the CVaR and the expected terminal wealth. While the mean-CVaR…
This paper examines the implementation of a statistical arbitrage trading strategy based on co-integration relationships where we discover candidate portfolios using multiple factors rather than just price data. The portfolio selection…
The problem of portfolio optimization when stochastic factors drive returns and volatilities has been studied in previous works by the authors. In particular, they proposed asymptotic approximations for value functions and optimal…
We study the existence of the numeraire portfolio under predictable convex constraints in a general semimartingale model of a financial market. The numeraire portfolio generates a wealth process, with respect to which the relative wealth…
In the portfolio multiobjective optimization framework, we propose to compare and choose, among all feasible asset portfolios of a given market, the one that maximizes the product of the distances between its values of risk and gain and…
This paper examines replication portfolio construction in incomplete markets - a key problem in financial engineering with applications in pricing, hedging, balance sheet management, and energy storage planning. We model this as a…
This paper studies the robust optimal gain selection problem for financial trading systems, formulated within a \emph{double linear policy} framework, which allocates capital across long and short positions. The key objective is to…
How should financial institutions hedge their balance sheets against interest rate risk when managing long-term assets and liabilities? We address this question by proposing a bond portfolio solution based on ambiguity-averse preferences,…