Related papers: Risk Management and Return Prediction
In this work, we introduce Modern Portfolio Theory using basic concepts from linear algebra, differential calculus, statistics, and optimization. This theory allows us to measure the return and risk of an investment portfolio, serving as a…
We show that the Markowitz portfolio is a scalar multiple of another portfolio which replaces the covariance with the second moment matrix, via simple application of the Sherman-Morrison identity. Moreover it is shown that when using…
In this work, we consider weighted signed network representations of financial markets derived from raw or denoised correlation matrices, and examine how negative edges can be exploited to reduce portfolio risk. We then propose a discrete…
The emergence of robust optimization has been driven primarily by the necessity to address the demerits of the Markowitz model. There has been a noteworthy debate regarding consideration of robust approaches as superior or at par with the…
Our article is focused on the application of Markowitz Portfolio Theory and the Single Index Model on 10-year historical monthly return data for 10 stocks included in FTSE Bursa Malaysia KLCI, which is also our market index, as well as a…
We investigate the well-posedness of a general class of singular stochastic control problems in which controls are processes of finite variation. We develop an abstract framework, which we then apply to storage management and portfolio…
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 propose an alternative linearization to the classical Markowitz quadratic portfolio optimization model, based on maximum drawdown. This model, which minimizes maximum portfolio drawdown, is particularly appealing during times of…
We consider an investor, whose portfolio consists of a single risky asset and a risk free asset, who wants to maximize his expected utility of the portfolio subject to managing the Value at Risk (VaR) assuming a heavy tailed distribution of…
We develop a framework for stochastic portfolio theory (SPT), which incorporates modern nonlinear price impact and impact decay models. Our main result is the derivation of the celebrated master formula for additive functional generation of…
The limitations of the traditional mean-variance (MV) efficient frontier, as introduced by Markowitz (1952), have been extensively documented in the literature. Specifically, the assumptions of normally distributed returns or quadratic…
We extend and test empirically the multifractal model of asset returns based on a multiplicative cascade of volatilities from large to small time scales. The multifractal description of asset fluctuations is generalized into a multivariate…
This paper studies the portfolio optimization problem when the investor's utility is general and the return and volatility of the risky asset are fast mean-reverting, which are important to capture the fast-time scale in the modeling of…
We study a mean-field version of rank-based models of equity markets such as the Atlas model introduced by Fernholz in the framework of Stochastic Portfolio Theory. We obtain an asymptotic description of the market when the number of…
Improvements in return forecast accuracy do not always lead to proportional improvements in portfolio decision quality, especially under realistic trading frictions and constraints. This paper adopts the Smart Predict--then--Optimize (SPO)…
The Markowitz model is still the cornerstone of modern portfolio theory. In particular, when focusing on the minimum-variance portfolio, the covariance matrix or better its inverse, the so-called precision matrix, is the only input…
This paper introduces a software component created in Visual Basic for Applications (VBA) that can be applied for creating an optimal portfolio using two different methods. The first method is the seminal approach of Markowitz that is based…
In this paper, we search for optimal portfolio strategies in the presence of various risk measure that are common in financial applications. Particularly, we deal with the static optimization problem with respect to Value at Risk, Expected…
In academic literature portfolio risk management and hedging are often versed in the language of stochastic control and Hamilton--Jacobi--Bellman~(HJB) equations in continuous time. In practice the continuous-time framework of stochastic…
We consider the problem of selecting a portfolio of assets that provides the investor a suitable balance of expected return and risk. With respect to the seminal mean-variance model of Markowitz, we consider additional constraints on the…