Related papers: Leveraged ETF Investing
The standard approach for constructing a Mean-Variance portfolio involves estimating parameters for the model using collected samples. However, since the distribution of future data may not resemble that of the training set, the…
Trading and investing in stocks for some is their full-time career, while for others, it's simply a supplementary income stream. Universal among all investors is the desire to turn a profit. The key to achieving this goal is…
We present a general equilibrium macro-finance model with a positive feedback loop between capital investment and land price. As leverage is relaxed beyond a critical value, through the financial accelerator, a phase transition occurs from…
Systemic financial risk refers to the simultaneous failure or destabilization of multiple financial institutions, often triggered by contagion mechanisms or common exposures to shocks. In this paper, we present a dynamical model of bank…
The existing approaches to sparse wealth allocations (1) are limited to low-dimensional setup when the number of assets is less than the sample size; (2) lack theoretical analysis of sparse wealth allocations and their impact on portfolio…
The age of big data has produced data sets that are computationally expensive to analyze and store. Algorithmic leveraging proposes that we sample observations from the original data set to generate a representative data set and then…
We argue that an important contributing factor into market inefficiency is the lack of a robust mechanism for the stock price to rise if a company has good earnings, e.g., via buybacks/dividends. Instead, the stock price is prone to…
Testing procedures for predictive regressions with lagged autoregressive variables imply a suboptimal inference in presence of small violations of ideal assumptions. We propose a novel testing framework resistant to such violations, which…
Understanding mortgage prepayment is crucial for any financial institution providing mortgages, and it is important for hedging the risk resulting from such unexpected cash flows. Here, in the setting of a Dutch mortgage provider, we…
We study a financial model with a non-trivial price impact effect. In this model we consider the interaction of a large investor trading in an illiquid security, and a market maker who is quoting prices for this security. We assume that the…
This study investigates the efficiency of some select stock markets. Using an improved wavelet estimator of long range dependence, we show evidence of long memory in the stock returns of some emerging Asian economies. However, developed…
Reinforcement learning (RL) has emerged as a transformative approach for financial trading, enabling dynamic strategy optimization in complex markets. This study explores the integration of sentiment analysis, derived from large language…
We propose a new `hedged' Monte-Carlo (HMC) method to price financial derivatives, which allows to determine simultaneously the optimal hedge. The inclusion of the optimal hedging strategy allows one to reduce the financial risk associated…
With the daily and minutely data of the German DAX and Chinese indices, we investigate how the return-volatility correlation originates in financial dynamics. Based on a retarded volatility model, we may eliminate or generate the…
In this work, we present an alternative passive investment strategy. The passive investment philosophy comes from the Efficient Market Hypothesis (EMH), and its adoption is widespread. If EMH is true, one cannot outperform market by…
In the market place, diversification reduces risk and provides protection against extreme events by ensuring that one is not overly exposed to individual occurrences. We argue that diversification is best measured by characteristics of the…
Solving large-scale robust portfolio optimization problems is challenging due to the high computational demands associated with an increasing number of assets, the amount of data considered, and market uncertainty. To address this issue, we…
All the financial practitioners are working in incomplete markets full of unhedgeable risk-factors. Making the situation worse, they are only equipped with the imperfect information on the relevant processes. In addition to the market risk,…
Exchange Traded Funds (ETFs) have been gaining increasing popularity in the investment community as is evidenced by the high growth both in the number of ETFs and their net assets since 2000. As ETFs are in nature similar to index mutual…
We propose a comprehensive treatment of the leverage effect, i.e. the relationship between returns and volatility of a specific asset, focusing on energy commodities futures, namely Brent and WTI crude oils, natural gas and heating oil.…