Related papers: Risk management under Omega measure
Returns distributions are heavy-tailed across asset classes. In this note, I examine the implications of this well-known stylized fact for the joint statistics of performance (absolute return) and Sharpe ratio (risk-adjusted return). Using…
Portfolio optimization in real-world financial markets is notoriously difficult due to non-stationarity, noisy data, and high transaction costs. Standard predict-then-optimize methods first forecast returns and then solve for weights,…
Stock portfolio optimization is the process of continuous reallocation of funds to a selection of stocks. This is a particularly well-suited problem for reinforcement learning, as daily rewards are compounding and objective functions may…
In an incomplete market, including liquidly-traded European options in an investment portfolio could potentially improve the expected terminal utility for a risk-averse investor. However, unlike the Sharpe ratio, which provides a concise…
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…
We adopt deep learning models to directly optimise the portfolio Sharpe ratio. The framework we present circumvents the requirements for forecasting expected returns and allows us to directly optimise portfolio weights by updating model…
In modern portfolio theory, the balancing of expected returns on investments against uncertainties in those returns is aided by the use of utility functions. The Kelly criterion offers another approach, rooted in information theory, that…
We employ model predictive control for a multi-period portfolio optimization problem. In addition to the mean-variance objective, we construct a portfolio whose allocation is given by model predictive control with a risk-parity objective,…
The optimal allocation of assets has been widely discussed with the theoretical analysis of risk measures, and pessimism is one of the most attractive approaches beyond the conventional optimal portfolio model. The $\alpha$-risk plays a…
This paper addresses the importance of incorporating various risk measures in portfolio management and proposes a dynamic hybrid portfolio optimization model that combines the spectral risk measure and the Value-at-Risk in the mean-variance…
Portfolio optimization is a challenging problem that has attracted considerable attention and effort from researchers. The optimization of stock portfolios is a particularly hard problem since the stock prices are volatile and estimation of…
This paper develops an axiomatic framework for ranking metrics, a general class of functionals for evaluating and ordering financial or insurance positions. Unlike traditional risk-adjusted performance measures-such as the Sharpe ratio,…
In this paper, we propose a market model with returns assumed to follow a multivariate normal tempered stable distribution defined by a mixture of the multivariate normal distribution and the tempered stable subordinator. This distribution…
Sharpe ratio (also known as reward-to-variability ratio) is a widely-used metric in finance, which measures the additional return at the cost of per unit of increased risk (standard deviation of return). However, the optimization of Sharpe…
It is shown that the axioms for coherent risk measures imply that whenever there is an asset in a portfolio that dominates the others in a given sample (which happens with finite probability even for large samples), then this portfolio…
The purpose of the study is to propose a methodology for evaluation and ranking of risky investment projects.An investment certainty equivalence approach dual to the conventional separation of riskless and risky contributions based on cash…
Index tracking is a popular form of asset management. Typically, a quadratic function is used to define the tracking error of a portfolio and the look back approach is applied to solve the index tracking problem. We argue that a forward…
Sharpe ratio is widely used in asset management to compare and benchmark funds and asset managers. It computes the ratio of the excess return over the strategy standard deviation. However, the elements to compute the Sharpe ratio, namely,…
Portfolio optimization aims at constructing a realistic portfolio with significant out-of-sample performance, which is typically measured by the out-of-sample Sharpe ratio. However, due to in-sample optimism, it is inappropriate to use the…
We study Spectral Measures of Risk from the perspective of portfolio optimization. We derive exact results which extend to general Spectral Measures M_phi the Pflug--Rockafellar--Uryasev methodology for the minimization of alpha--Expected…