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We introduce an ensemble learning method for dynamic portfolio valuation and risk management building on regression trees. We learn the dynamic value process of a derivative portfolio from a finite sample of its cumulative cash flow. The…
We review recent progress in modeling credit risk for correlated assets. We start from the Merton model which default events and losses are derived from the asset values at maturity. To estimate the time development of the asset values, the…
In this work, we consider the optimal portfolio selection problem under hard constraints on trading amounts, transaction costs and different rates for borrowing and lending when the risky asset returns are serially correlated. No…
We describe the pricing and hedging of financial options without the use of probability using rough paths. By encoding the volatility of assets in an enhancement of the price trajectory, we give a pathwise presentation of the replication of…
This paper expands traditional stochastic volatility models by allowing for time-varying skewness without imposing it. While dynamic asymmetry may capture the likely direction of future asset returns, it comes at the risk of leading to…
The stability of the financial system is associated with systemic risk factors such as the concurrent default of numerous small obligors. Hence it is of utmost importance to study the mutual dependence of losses for different creditors in…
This paper solves the dynamic portfolio choice problem. Using an explicit solution with a power utility, we construct a bridge between a continuous and discrete VAR model to assess portfolio sensitivities. We find, from a well analyzed…
In this paper we develop models of asset return mean and covariance that depend on some observable market conditions, and use these to construct a trading policy that depends on these conditions, and the current portfolio holdings. After…
This paper studies an infinite horizon optimal tracking portfolio problem using capital injection in incomplete market models. The benchmark process is modelled by a geometric Brownian motion with zero drift driven by some unhedgeable risk.…
Financial markets tend to switch between various market regimes over time, making stationarity-based models unsustainable. We construct a regime-switching model independent of asset classes for risk-adjusted return predictions based on…
This paper introduces a dynamic minimum variance portfolio (MVP) model using nonlinear volatility dynamic models, based on high-frequency financial data. Specifically, we impose an autoregressive dynamic structure on MVP processes, which…
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…
We establish the first axiomatic theory for diversification indices using six intuitive axioms: non-negativity, location invariance, scale invariance, rationality, normalization, and continuity. The unique class of indices satisfying these…
We apply numerical dynamic programming techniques to solve discrete-time multi-asset dynamic portfolio optimization problems with proportional transaction costs and shorting/borrowing constraints. Examples include problems with multiple…
We develop an entropic framework to model the dynamics of stocks and European Options. Entropic inference is an inductive inference framework equipped with proper tools to handle situations where incomplete information is available. The…
This paper develops a flexible and computationally efficient multivariate volatility model, which allows for dynamic conditional correlations and volatility spillover effects among financial assets. The new model has desirable properties…
This study examines the performance of a volatility-based strategy using Chinese equity index ETF options. Initially successful, the strategy's effectiveness waned post-2018. By integrating GARCH models for volatility forecasting, the…
The paper demonstrates that a pure-diffusion 3/2 model is able to capture the observed upward-sloping implied volatility skew in VIX options. This observation contradicts a common perception in the literature that jumps are required for the…
In this work, we propose an approach to generalize denoising diffusion probabilistic models for stock market predictions and portfolio management. Present works have demonstrated the efficacy of modeling interstock relations for market…
This paper develops a method to derive optimal portfolios and risk premia explicitly in a general diffusion model for an investor with power utility and a long horizon. The market has several risky assets and is potentially incomplete.…