Related papers: Optimal Rebalancing Frequencies for Multidimension…
In this paper, we present a probabilistic numerical algorithm combining dynamic programming, Monte Carlo simulations and local basis regressions to solve non-stationary optimal multiple switching problems in infinite horizon. We provide the…
This work initiates research into the problem of determining an optimal investment strategy for investors with different attitudes towards the trade-offs of risk and profit. The probability distribution of the return values of the stocks…
We propose a framework to study optimal trading policies in a one-tick pro-rata limit order book, as typically arises in short-term interest rate futures contracts. The high-frequency trader has the choice to trade via market orders or…
We give a simple explicit formula for turnover reduction when a large number of alphas are traded on the same execution platform and trades are crossed internally. We model turnover reduction via alpha correlations. Then, for a large number…
We consider the problem of optimizing the expected logarithmic utility of the value of a portfolio in a binomial model with proportional transaction costs with a long time horizon. By duality methods, we can find expressions for the…
Portfolio selection problems that optimize expected utility are usually difficult to solve. If the number of assets in the portfolio is large, such expected utility maximization problems become even harder to solve numerically. Therefore,…
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…
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…
In this paper, we implement and evaluate a conditional diffusion model for asset return prediction and portfolio construction on large-scale equity data. Our method models the full distribution of future returns conditioned on firm…
The problem of pricing Bermudan options using Monte Carlo and a nonparametric regression is considered. We derive optimal non-asymptotic bounds for a lower biased estimate based on the suboptimal stopping rule constructed using some…
The paper investigates quadratic hedging in a semimartingale market that does not necessarily contain a risk-free asset. An equivalence result for hedging with and without numeraire change is established. This permits direct computation of…
We consider a portfolio allocation problem for trend following (TF) strategies on multiple correlated assets. Under simplifying assumptions of a Gaussian market and linear TF strategies, we derive analytical formulas for the mean and…
In this paper, we use replica analysis to investigate the influence of correlation among the return rates of assets on the solution of the portfolio optimization problem. We consider the behavior of the optimal solution for the case where…
We study portfolio selection in a model with both temporary and transient price impact introduced by Garleanu and Pedersen (2016). In the large-liquidity limit where both frictions are small, we derive explicit formulas for the…
We discuss investment allocation to multiple alpha streams traded on the same execution platform with internal crossing of trades and point out differences with allocating investment when alpha streams are traded on separate execution…
We consider an investor, whose portfolio consists of a single risky asset and a risk free asset, who wants to maximize his expected utility of the portfolio subject to managing the Value at Risk (VaR) assuming a heavy tailed distribution of…
Classical mean-variance portfolio theory tells us how to construct a portfolio of assets which has the greatest expected return for a given level of return volatility. Utility theory then allows an investor to choose the point along this…
Transaction costs play a critical role in asset allocation and consumption strategies in portfolio management. We apply the methods of dynamic programming and singular perturbation expansion to derive the closed-form leading solutions to…
In this paper, we combine modern portfolio theory and option pricing theory so that a trader who takes a position in a European option contract and the underlying assets can construct an optimal portfolio such that at the moment of the…
This paper resolves a question proposed in Kardaras and Robertson [Ann. Appl. Probab. 22 (2012) 1576-1610]: how to invest in a robust growth-optimal way in a market where precise knowledge of the covariance structure of the underlying…