Related papers: Risk management under Omega measure
In this paper, we propose a general bi-objective model for portfolio selection, aiming to maximize both a diversification measure and the portfolio expected return. Within this general framework, we focus on maximizing a diversification…
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…
Average forecast accuracy is not the same as forecast reliability. I treat forecast loss differentials relative to a benchmark as a return series. I then evaluate these returns using risk-adjusted performance measures from finance,…
We introduce a financial portfolio optimization framework that allows us to automatically select the relevant assets and estimate their weights by relying on a sorted $\ell_1$-Norm penalization, henceforth SLOPE. Our approach is able to…
Cryptocurrency markets exhibit pronounced momentum effects and regime-dependent volatility, presenting both opportunities and challenges for systematic trading strategies. We propose AdaptiveTrend, a multi-component algorithmic trading…
Managing a portfolio to a risk model can tilt the portfolio toward weaknesses of the model. As a result, the optimized portfolio acquires downside exposure to uncertainty in the model itself, what we call "second order risk." We propose a…
We investigate an application of network centrality measures to portfolio optimization, by generalizing the method in [Pozzi, Di Matteo and Aste, \emph{Spread of risks across financial markets: better to invest in the peripheries},…
Portfolio optimization has long been dominated by covariance-based strategies, such as the Markowitz Mean-Variance framework. However, these approaches often fail to ensure a balanced risk structure across assets, leading to concentration…
The Sharpe ratio is the most widely used risk metric in the quantitative finance community - amazingly, essentially everyone gets it wrong. In this note, we will make a quixotic effort to rectify the situation.
Recognizing that asset markets generally exhibit shared informational characteristics, we develop a portfolio strategy based on transfer learning that leverages cross-market information to enhance the investment performance in the market of…
The Sharpe ratio, which is defined as the ratio of the excess expected return of an investment to its standard deviation, has been widely cited in the financial literature by researchers and practitioners. However, very little attention has…
The fundamental principle in Modern Portfolio Theory (MPT) is based on the quantification of the portfolio's risk related to performance. Although MPT has made huge impacts on the investment world and prompted the success and prevalence of…
We consider the problem of optimizing a portfolio of financial assets, where the number of assets can be much larger than the number of observations. The optimal portfolio weights require estimating the inverse covariance matrix of excess…
Risk aversion plays a significant and central role in investors' decisions in the process of developing a portfolio. In this framework of portfolio optimization we determine the portfolio that possesses the minimal risk by using a new…
The Total Portfolio Approach and Strategic Asset Allocation are widely viewed as competing frameworks for institutional portfolio management. We argue they differ in a single governance parameter: the tracking error constraint. Using U.S.…
This paper explores the effectiveness of high-frequency options trading strategies enhanced by advanced portfolio optimization techniques, investigating their ability to consistently generate positive returns compared to traditional long or…
We study the problem of portfolio insurance from the point of view of a fund manager, who guarantees to the investor that the portfolio value at maturity will be above a fixed threshold. If, at maturity, the portfolio value is below the…
We study the feasibility and noise sensitivity of portfolio optimization under some downside risk measures (Value-at-Risk, Expected Shortfall, and semivariance) when they are estimated by fitting a parametric distribution on a finite sample…
This paper studies the time-varying structure of the equity market with respect to market capitalization. First, we analyze the distribution of the 100 largest companies' market capitalizations over time, in terms of inequality,…
Portfolio optimization methods suffer from a catalogue of known problems, mainly due to the facts that pair correlations of asset returns are unstable, and that extremal risk measures such as maximum drawdown are difficult to predict due to…