Related papers: Time consistency of the mean-risk problem
In this paper we propose the notion of continuous-time dynamic spectral risk-measure (DSR). Adopting a Poisson random measure setting, we define this class of dynamic coherent risk-measures in terms of certain backward stochastic…
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…
We consider the stochastic shortest path planning problem in MDPs, i.e., the problem of designing policies that ensure reaching a goal state from a given initial state with minimum accrued cost. In order to account for rare but important…
The classical mean-variance portfolio selection problem induces time-inconsistent (precommited) strategies (see Zhou and Li (2000)). To overcome this time-inconsistency, Basak and Chabakauri (2010) introduce the game theoretical approach…
In the continuous time mean-variance model, we want to minimize the variance (risk) of the investment portfolio with a given mean at terminal time. However, the investor can stop the investment plan at any time before the terminal time. To…
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…
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…
Portfolio optimization under cardinality constraints transforms the classical Markowitz mean-variance problem from a convex quadratic problem into an NP-hard combinatorial optimization problem. This paper introduces a novel approach using…
We present a scheme for sequential decision making with a risk-sensitive objective and constraints in a dynamic environment. A neural network is trained as an approximator of the mapping from parameter space to space of risk and policy with…
In this paper, we revisit the relationship between investors' utility functions and portfolio allocation rules. We derive portfolio allocation rules for asymmetric Laplace distributed $ALD(\mu,\sigma,\kappa)$ returns and compare them with…
This paper considers the mean variance portfolio management problem. We examine portfolios which contain both primary and derivative securities. The challenge in this context is due to portfolio's nonlinearities. The delta-gamma…
We consider the problem of mean-variance portfolio optimization for a generic covariance matrix subject to the budget constraint and the constraint for the expected return, with the application of the replica method borrowed from the…
Recent studies stressed the fact that covariance matrices computed from empirical financial time series appear to contain a high amount of noise. This makes the classical Markowitz Mean-Variance Optimization model unable to correctly…
We consider a dynamic portfolio optimization problem that incorporates predictable returns, instantaneous transaction costs, price impact, and stochastic volatility, extending the classical results of Garleanu and Pedersen (2013), which…
This paper considers the portfolio management problem of optimal investment, consumption and life insurance. We are concerned with time inconsistency of optimal strategies. Natural assumptions, like different discount rates for consumption…
Merton portfolio management problem is studied in this paper within a stochastic volatility, non constant time discount rate, and power utility framework. This problem is time inconsistent and the way out of this predicament is to consider…
We investigate time-inconsistent portfolio problems under a broader class of monotone mean-variance (MMV) preferences. Since the optimal strategies for MMV and mean-variance (MV) preferences coincide, the MMV optimal strategies at different…
We quantify model risk of a financial portfolio whereby a multi-period mean-standard-deviation criterion is used as a selection criterion. In this work, model risk is defined as the loss due to uncertainty of the underlying distribution of…
One of the crucial problems in mathematical finance is to mitigate the risk of a financial position by setting up hedging positions of eligible financial securities. This leads to focusing on set-valued maps associating to any financial…
The classical mean-variance framework characterizes portfolio risk solely through return variance and the covariance matrix, implicitly assuming that all relevant sources of risk are captured by second moments. In modern financial markets,…