Related papers: Entropy and Optimization of Portfolios
The probability minimizing problem of large losses of portfolio in discrete and continuous time models is studied. This gives a generalization of quantile hedging presented in [3].
The asymptotic distribution of the Markowitz portfolio is derived, for the general case (assuming fourth moments of returns exist), and for the case of multivariate normal returns. The derivation allows for inference which is robust to…
We study the problem of synthesizing a policy that maximizes the entropy of a Markov decision process (MDP) subject to a temporal logic constraint. Such a policy minimizes the predictability of the paths it generates, or dually, maximizes…
The measure of portfolio risk is an important input of the Markowitz framework. In this study, we explored various methods to obtain a robust covariance estimators that are less susceptible to financial data noise. We evaluated the…
We describe an optimization-based tax-aware portfolio construction method that adds tax liability to standard Markowitz-based portfolio construction. Our method produces a trade list that specifies the number of shares to buy of each asset…
We consider an investor facing a classical portfolio problem of optimal investment in a log-Brownian stock and a fixed-interest bond, but constrained to choose portfolio and consumption strategies that reduce a dynamic shortfall risk…
We discuss how maximum entropy methods may be applied to the reconstruction of Markov processes underlying empirical time series and compare this approach to usual frequency sampling. It is shown that, at least in low dimension, there…
The mean and variance of portfolio returns are the standard quantities to measure the expected return and risk of a portfolio. Efficient portfolios that provide optimal trade-offs between mean and variance warrant consideration. To express…
We study entropy-regularized mean-variance portfolio optimization under Bayesian drift uncertainty. Gaussian policies remain optimal under partial information, the value function is quadratic in wealth, and belief-dependent coefficients…
Stochastic algorithms are among the best for solving computationally hard search and reasoning problems. The runtime of such procedures is characterized by a random variable. Different algorithms give rise to different probability…
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…
Policy optimization algorithms are crucial in many fields but challenging to grasp and implement, often due to complex calculations related to Markov decision processes and varying use of discount and average reward setups. This paper…
An efficient approach to the calculation of the $\epsilon$-entropy is proposed. The method is based on the idea of looking at the information content of a string of data, by analyzing the signal only at the instants when the fluctuations…
Recent advances in quantum hardware offer new approaches to solve various optimization problems that can be computationally expensive when classical algorithms are employed. We propose a hybrid quantum-classical algorithm to solve a dynamic…
Modeling and managing portfolio risk is perhaps the most important step to achieve growing and preserving investment performance. Within the modern portfolio construction framework that built on Markowitz's theory, the covariance matrix of…
We use a replica approach to deal with portfolio optimization problems. A given risk measure is minimized using empirical estimates of asset values correlations. We study the phase transition which happens when the time series is too short…
This paper studies the mean-variance optimal portfolio choice of an investor pre-committed to a deterministic investment policy in continuous time in a market with mean-reversion in the risk-free rate and the equity risk-premium. In the…
We consider a basic model of multi-period trading, which can be used to evaluate the performance of a trading strategy. We describe a framework for single-period optimization, where the trades in each period are found by solving a convex…
This paper introduces a software component created in Visual Basic for Applications (VBA) that can be applied for creating an optimal portfolio using two different methods. The first method is the seminal approach of Markowitz that is based…
In this short note, we will show how to optimize the portfolio of a large trader whose hedging strategy affects the price of his assets.