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The paper studies problem of continuous time optimal portfolio selection for a incom- plete market diffusion model. It is shown that, under some mild conditions, near optimal strategies for investors with different performance criteria can…
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…
The expanding number of assets offers more opportunities for investors but poses new challenges for modern portfolio management (PM). As a central plank of PM, portfolio selection by expected utility maximization (EUM) faces uncontrollable…
We propose an end-to-end distributionally robust system for portfolio construction that integrates the asset return prediction model with a distributionally robust portfolio optimization model. We also show how to learn the risk-tolerance…
In behavioral finance, aversion affects investors' judgment of future uncertainty when profit and loss occur. Considering investors' aversion to loss and risk, and the ambiguous uncertainty characterizing asset returns, we construct a…
The problem of estimation error in portfolio optimization is discussed, in the limit where the portfolio size N and the sample size T go to infinity such that their ratio is fixed. The estimation error strongly depends on the ratio N/T and…
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,…
This paper is concerned with the uniqueness issue of open-loop equilibrium investment strategies of dynamic mean-variance portfolio selection problems with random coefficients. A unified method is developed to treat both the problems with…
This article deals with the problem of optimal allocation of capital to corporate bonds in fixed income portfolios when there is the possibility of correlated defaults. Under fairly general assumptions for the distribution of the total net…
We present a general framework for portfolio risk management in discrete time, based on a replicating martingale. This martingale is learned from a finite sample in a supervised setting. The model learns the features necessary for an…
Finding the hedge ratios for a portfolio and risk compression is the same mathematical problem. Traditionally, regression is used for this purpose. However, regression has its own limitations. For example, in a regression model, we can't…
A constant weight asset allocation is a popular investment strategy and is optimal under a suitable continuous model. We study the tracking error for the target continuous rebalancing strategy by a feasible discrete-in-time rebalancing…
We address the problem of portfolio optimization under the simplest coherent risk measure, i.e. the expected shortfall. As it is well known, one can map this problem into a linear programming setting. For some values of the external…
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 consider an optimal investment and risk control problem for an insurer under the mean-variance (MV) criterion. By introducing a deterministic auxiliary process defined forward in time, we formulate an alternative time-consistent problem…
We define and develop an approach for risk budgeting allocation - a risk diversification portfolio strategy - where risk is measured using a dynamic time-consistent risk measure. For this, we introduce a notion of dynamic risk contributions…
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…
Financial portfolio optimization is a widely studied problem in mathematics, statistics, financial and computational literature. It adheres to determining an optimal combination of weights associated with financial assets held in a…
We consider the mean--variance portfolio optimization problem under the game theoretic framework and without risk-free assets. The problem is solved semi-explicitly by applying the extended Hamilton--Jacobi--Bellman equation. Although the…
We study financial networks where banks are connected through bilateral liabilities and may default when resources are insufficient to meet obligations. We consider both the standard proportional clearing model and a priority-proportional…