Related papers: Closed-form portfolio optimization under GARCH mod…
In this paper we consider a variation of the Merton's problem with added stochastic volatility and finite time horizon. It is known that the corresponding optimal control problem may be reduced to a linear parabolic boundary problem under…
Robust, or model-independent properties of the variance swap are well-known, and date back to Dupire and Neuberger, who showed that, given the price of co-terminal call options, the price of a variance swap was exactly specified under the…
In an asset return series there is a conditional asymmetric dependence between current return and past volatility depending on the current return's sign. To take into account the conditional asymmetry, we introduce new models for asset…
In this study, we develop a unified volatility modeling framework that embeds GARCH dynamics directly within recurrent neural networks. We propose two interpretable hybrid architectures, GARCH-GRU and GARCH-LSTM, that integrate the…
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 investigates dynamic and static fund separations and their stability for long-term optimal investments under three model classes. An investor maximizes the expected utility with constant relative risk aversion under an incomplete…
In this paper, we consider three stochastic-volatility models, each characterized by distinct dynamics of instantaneous volatility: (1) a CIR process for squared volatility (i.e., the classical Heston model); (2) a mean-reverting lognormal…
In this paper, we are concerned with the optimization of a dynamic investment portfolio when the securities which follow a multivariate Merton model with dependent jumps are periodically invested and proceed by approximating the…
Volatility clustering and spillovers are key features of real-world financial time series when there are a lot of cross-sectional financial assets. While network analysis helps connect stocks that are 'similar' or 'correlated', which is…
We propose a new class of financial volatility models, called the REcurrent Conditional Heteroskedastic (RECH) models, to improve both in-sample analysis and out-ofsample forecasting of the traditional conditional heteroskedastic models. In…
Quantifying both historic and future volatility is key in portfolio risk management. This note presents and compares estimation strategies for volatility estimation in an estimation universe consisting on 28 629 unique companies from…
We study the continuous time portfolio optimization model on the market where the mean returns of individual securities or asset categories are linearly dependent on underlying economic factors. We introduce the functional $Q_\gamma$…
We derive a closed form portfolio optimization rule for an investor who is diffident about mean return and volatility estimates, and has a CRRA utility. The novelty is that confidence is here represented using ellipsoidal uncertainty sets…
In this paper we study time-consistent risk measures for returns that are given by a GARCH(1,1) model. We present a construction of risk measures based on their static counterparts that overcomes the lack of time-consistency. We then study…
A spin model is used for simulations of financial markets. To determine return volatility in the spin financial market we use the GARCH model often used for volatility estimation in empirical finance. We apply the Bayesian inference…
The present paper provides a study of high-dimensional statistical arbitrage that combines factor models with the tools from stochastic control, obtaining closed-form optimal strategies which are both interpretable and computationally…
In this paper, we consider the portfolio optimization problem in a financial market under a general utility function. Empirical results suggest that if a significant market fluctuation occurs, invested wealth tends to have a notable change…
Time-series calibrations often suggest that the GARCH diffusion model could also be a suitable candidate for option (risk-neutral) calibration. But unlike the popular Heston model, it lacks a fast, semi-analytic solution for the pricing of…
This paper is concerned with an optimal investment problem under correlated noises in the financial market, and the expected utility functional is hyperbolic absolute risk aversion (HARA) with the exponent $\gamma\neq0$. The problem can be…
We study a goal-based portfolio selection problem in which an investor aims to meet multiple financial goals, each with a specific deadline and target amount. Trading the stock incurs a strictly positive transaction cost. Using the…