Related papers: Optimization of relative arbitrage
We introduce a bond portfolio management theory based on foundations similar to those of stock portfolio management. A general continuous-time zero-coupon market is considered. The problem of optimal portfolios of zero-coupon bonds is…
We introduce predictable relative forward performance processes (PRFPP) as a new framework for studying portfolio management within a competitive and incomplete market environment. Each agent trades a distinct stock following a binomial…
During the last few years, there has been an interest in comparing simple or heuristic procedures for portfolio selection, such as the naive, equal weights, portfolio choice, against more "sophisticated" portfolio choices, and in explaining…
Volatility is the canonical measure of financial risk, a role largely inherited from Modern Portfolio Theory. Yet, its universality rests on restrictive efficiency assumptions that render volatility, at best, an incomplete proxy for true…
We investigate how and when to diversify capital over assets, i.e., the portfolio selection problem, from a signal processing perspective. To this end, we first construct portfolios that achieve the optimal expected growth in i.i.d.…
This paper describes a new method of bond portfolio optimization based on stochastic string models of correlation structure in bond returns. The paper shows how to approximate correlation function of bond returns, compute the optimal…
There is substantial empirical evidence showing the fundamental portfolio outperforming the market portfolio. Here a theoretical foundation is laid that supports this empirical research. Assuming stock prices revert around fundamental…
This paper investigates the optimal choices of financial derivatives to complete a financial market in the framework of stochastic volatility (SV) models. We introduce an efficient and accurate simulation-based method, applicable to…
Portfolio management problems are often divided into two types: active and passive, where the objective is to outperform and track a preselected benchmark, respectively. Here, we formulate and solve a dynamic asset allocation problem that…
In the seminal work [9], several macroscopic market observables have been introduced, in an attempt to find characteristics capturing the diversity of a financial market. Despite the crucial importance of such observables for investment…
We consider portfolio optimization in futures markets. We model the entire futures price curve at once as a solution of a stochastic partial differential equation. The agents objective is to maximize her utility from the final wealth when…
This paper studies some unconventional utility maximization problems when the ratio type relative portfolio performance is periodically evaluated over an infinite horizon. Meanwhile, the agent is prohibited from short-selling stocks. Our…
A financial market comprising of a certain number of distinct companies is considered, and the following statement is proved: either a specific agent will surely beat the whole market unconditionally in the long run, or (and this "or" is…
We introduce a generic solver for dynamic portfolio allocation problems when the market exhibits return predictability, price impact and partial observability. We assume that the price modeling can be encoded into a linear state-space and…
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…
We propose an optimal portfolio problem in the incomplete market where the underlying assets depend on economic factors with delayed effects, such models can describe the short term forecasting and the interaction with time lag among…
We consider a multi-stock continuous time incomplete market model with random coefficients. We study the investment problem in the class of strategies which do not use direct observations of the appreciation rates of the stocks, but rather…
We consider a reference security, understood to be an attractive investment, with the caveat that an investor is not willing to directly invest in the security, for presence of constraints, either investor specific or pertaining to the…
This paper addresses the portfolio selection problem for nonlinear law-dependent preferences in continuous time, which inherently exhibit time inconsistency. Employing the method of stochastic maximum principle, we establish verification…
We develop a framework for stochastic portfolio theory (SPT), which incorporates modern nonlinear price impact and impact decay models. Our main result is the derivation of the celebrated master formula for additive functional generation of…