Related papers: Lost in Diversification
A well-interpretable measure of information has been recently proposed based on a partition obtained by intersecting a random sequence with its moving average. The partition yields disjoint sets of the sequence, which are then ranked…
Multivariate information decompositions hold promise to yield insight into complex systems, and stand out for their ability to identify synergistic phenomena. However, the adoption of these approaches has been hindered by there being…
Diversification of an investment into independently fluctuating assets reduces its risk. In reality, movement of assets are are mutually correlated and therefore knowledge of cross--correlations among asset price movements are of great…
The information released to investors in financial markets has various forms. We refer to range information as information about the upper and lower bound which the payoff of a risky asset may reach in the future. This study develops…
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…
We analyze the stability of financial investment networks, where financial institutions hold overlapping portfolios of assets. We consider the effect of portfolio diversification and heterogeneous investments using a random matrix dynamical…
Privacy preservation is a fundamental requirement in many high-stakes domains such as medicine and finance, where sensitive personal data must be analyzed without compromising individual confidentiality. At the same time, these applications…
We present a novel synthesis of Fisher information and asset pricing theory that yields a practical method for reconstructing the probability density implicit in security prices. The Fisher information approach to these inverse problems…
The robust option pricing problem is to find upper and lower bounds on fair prices of financial claims using only the most minimal assumptions. It contrasts with the classical, model-based approach and gained prominence in the wake of the…
We consider an investor facing a classical portfolio problem of optimal investment in a log-Brownian stock and a fixed-interest bond, but constrained to choose portfolio and consumption strategies that reduce a dynamic shortfall risk…
We extend the theory of asymmetric information in mispricing models for stocks following geometric Brownian motion to constant relative risk averse investors. Mispricing follows a continuous mean--reverting Ornstein--Uhlenbeck process.…
We show that under mild assumptions, the total value of information to informed traders in the market can be measured by the covariance between price changes and order flow. This covariance captures noise trader losses, which equal informed…
Risk control and optimal diversification constitute a major focus in the finance and insurance industries as well as, more or less consciously, in our everyday life. We present a discussion of the characterization of risks and of the…
We introduce a dynamic optimization framework to analyze optimal portfolio allocations within an information driven contagious distress model. The investor allocates his wealth across several stocks whose growth rates and distress…
Excessive leverage, i.e. the abuse of debt financing, is considered one of the primary factors in the default of financial institutions. Systemic risk results from correlations between individual default probabilities that cannot be…
Portfolio diversification and active risk management are essential parts of financial analysis which became even more crucial (and questioned) during and after the years of the Global Financial Crisis. We propose a novel approach to…
In a previous FAST paper, I presented a quantitative model of the process of trust building, and showed that trust is accumulated like wealth: the rich get richer. This explained the pervasive phenomenon of adverse selection of trust…
The optimization of large portfolios displays an inherent instability to estimation error. This poses a fundamental problem, because solutions that are not stable under sample fluctuations may look optimal for a given sample, but are, in…
We present a novel methodology to quantify the "impact" of and "response" to market shocks. We apply shocks to a group of stocks in a part of the market, and we quantify the effects in terms of average losses on another part of the market…
How can graph theory be applied to investing in the stock market? The answer may help investors realize the true risks of their investments, help prevent recessions like that of 2008, and increase financial literacy amongst students. Using…