Related papers: Risk minimization and portfolio diversification
We review the recently introduced concept of variety of a financial portfolio and we sketch its importance for risk control purposes. The empirical behaviour of variety, correlation, exceedance correlation and asymmetry of the probability…
We present a simulation-and-regression method for solving dynamic portfolio allocation problems in the presence of general transaction costs, liquidity costs and market impacts. This method extends the classical least squares Monte Carlo…
The problem of portfolio allocation in the context of stocks evolving in random environments, that is with volatility and returns depending on random factors, has attracted a lot of attention. The problem of maximizing a power utility at a…
We consider the problem of correlation clustering on graphs with constraints on both the cluster sizes and the positive and negative weights of edges. Our contributions are twofold: First, we introduce the problem of correlation clustering…
A drawdown constraint forces the current wealth to remain above a given function of its maximum to date. We consider the portfolio optimisation problem of maximising the long-term growth rate of the expected utility of wealth subject to a…
We assume that an individual invests in a financial market with one riskless and one risky asset, with the latter's price following geometric Brownian motion as in the Black-Scholes model. Under a constant rate of consumption, we find the…
We employ perturbation analysis technique to study multi-asset portfolio optimisation with transaction cost. We allow for correlations in risky assets and obtain optimal trading methods for general utility functions. Our analytical results…
Portfolio management is an essential component of investment strategy that aims to maximize returns while minimizing risk. This paper explores several portfolio management strategies, including asset allocation, diversification, active…
Although maximizing median and quantiles is intuitively appealing and has an axiomatic foundation, it is difficult to study the optimal portfolio strategy due to the discontinuity and time inconsistency in the objective function. We use the…
The question of optimal portfolio is addressed. The conventional Markowitz portfolio optimisation is discussed and the shortcomings due to non-Gaussian security returns are outlined. A method is proposed to minimise the likelihood of…
We aim to cluster financial assets in order to identify a small set of stocks to approximate the level of diversification of the whole universe of stocks. We develop a data-driven approach to clustering based on a correlation blockmodel in…
This paper studies dynamic asset allocation with interest rate risk and several sources of ambiguity. The market consists of a risk-free asset, a zero-coupon bond (both determined by a Vasicek model), and a stock. There is ambiguity about…
Portfolio optimization is a cornerstone of financial decision-making, traditionally relying on classical algorithms to balance risk and return. Recent advances in quantum computing offer a promising alternative, leveraging quantum…
In this paper we consider the problem of minimising drawdown in a portfolio of financial assets. Here drawdown represents the relative opportunity cost of the single best missed trading opportunity over a specified time period. We formulate…
Using Random Matrix Theory one can derive exact relations between the eigenvalue spectrum of the covariance matrix and the eigenvalue spectrum of its estimator (experimentally measured correlation matrix). These relations will be used to…
This paper presents a novel framework for analyzing the optimal asset and signal combination problem. Our approach builds upon the dynamic portfolio selection problem introduced by Brandt and Santa-Clara (2006) and consists of two stages.…
In this paper we study a continuous-time stochastic linear quadratic control problem arising from mathematical finance. We model the asset dynamics with random market coefficients and portfolio strategies with convex constraints. Following…
We extend Relative Robust Portfolio Optimisation models to allow portfolios to optimise their distance to a set of benchmarks. Portfolio managers are also given the option of computing regret in a way which is more in line with market…
The portfolio optimization problem in which the variances of the return rates of assets are not identical is analyzed in this paper using the methodology of statistical mechanical informatics, specifically, replica analysis. We define two…
We reconsider the problem of option pricing using historical probability distributions. We first discuss how the risk-minimisation scheme proposed recently is an adequate starting point under the realistic assumption that price increments…