Related papers: Time consistency of the mean-risk problem
The measure of portfolio risk is an important input of the Markowitz framework. In this study, we explored various methods to obtain a robust covariance estimators that are less susceptible to financial data noise. We evaluated the…
This paper studies stochastic optimization problems and associated Bellman equations in formats that allow for reduced dimensionality of the cost-to-go functions. In particular, we study stochastic control problems in the…
We study a continuous-time Markowitz mean-variance portfolio selection model in which a naive agent, unaware of the underlying time-inconsistency, continuously reoptimizes over time. We define the resulting naive policies through the limit…
We first study the properties of solutions of quadratic programs with linear equality constraints whose parameters are estimated from data in the high-dimensional setting where p, the number of variables in the problem, is of the same order…
This article studies a portfolio optimization problem, where the market consisting of several stocks is modeled by a multi-dimensional jump-diffusion process with age-dependent semi-Markov modulated coefficients. We study risk sensitive…
The portfolio optimization problem is a critical issue in asset management and has long been studied. Markowitz's mean-variance model has fundamental limitations, such as the assumption of a normal distribution for returns and sensitivity…
We revisit Markowitz's mean-variance portfolio selection model by considering a distributionally robust version, where the region of distributional uncertainty is around the empirical measure and the discrepancy between probability measures…
In this paper we consider long-run risk sensitive average cost impulse control applied to a continuous-time Feller-Markov process. Using the probabilistic approach, we show how to get a solution to a suitable continuous-time Bellman…
This paper investigates discrete-time Markov decision processes with recursive utilities (or payoffs) defined by the classic CES aggregator and the Kreps-Porteus certainty equivalent operator. According to the classification introduced by…
Markowitz's criterion aims to balance expected return and risk when optimizing the portfolio. The expected return level is usually fixed according to the risk appetite of an investor, then the risk is minimized at this fixed return level.…
This paper proposes a new method for financial portfolio optimization based on reducing simultaneous asset shocks across a collection of assets. This may be understood as an alternative approach to risk reduction in a portfolio based on a…
This paper investigates a continuous-time portfolio optimization problem with the following features: (i) a no-short selling constraint; (ii) a leverage constraint, that is, an upper limit for the sum of portfolio weights; and (iii) a…
It is well known that the out-of-sample performance of Markowitz's mean-variance portfolio criterion can be negatively affected by estimation errors in the mean and covariance. In this paper we address the problem by regularizing the…
To investigate a time-consistent optimal strategy for the continuous time mean-variance model, we develop a new method to establish the Bellman principle. Based on this new method, we obtain a time-consistent dynamic optimal strategy that…
Existing work on risk-sensitive reinforcement learning - both for symmetric and downside risk measures - has typically used direct Monte-Carlo estimation of policy gradients. While this approach yields unbiased gradient estimates, it also…
We develop a framework for convexifying a fairly general class of optimization problems. Under additional assumptions, we analyze the suboptimality of the solution to the convexified problem relative to the original nonconvex problem and…
In this paper we present a framework for risk-averse model predictive control (MPC) of linear systems affected by multiplicative uncertainty. Our key innovation is to consider time-consistent, dynamic risk metrics as objective functions to…
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…
In this paper we consider a discrete-time risk sensitive portfolio optimization over a long time horizon with proportional transaction costs. We show that within the log-return i.i.d. framework the solution to a suitable Bellman equation…
We study time-consistency questions for processes of monetary risk measures that depend on bounded discrete-time processes describing the evolution of financial values. The time horizon can be finite or infinite. We call a process of…