Related papers: Derivatives-based portfolio decisions. An expected…
Equity premium, the surplus returns of stocks over bonds, has been an enduring puzzle. While numerous prior works approach the problem assuming the utility of money is invariant across contexts, our approach implies that in efficient…
The effectiveness of utility-maximization techniques for portfolio management relies on our ability to estimate correctly the parameters of the dynamics of the underlying financial assets. In the setting of complete or incomplete financial…
The problem of robust utility maximization in an incomplete market with volatility uncertainty is considered, in the sense that the volatility of the market is only assumed to lie between two given bounds. The set of all possible models…
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…
Parametric Portfolio Policies (PPP) estimate optimal portfolio weights directly as functions of observable signals by maximizing expected utility, bypassing the need to model asset returns and covariances. However, PPP ignores policy risk.…
We investigate how and when to diversify capital over assets, i.e., the portfolio selection problem, from a signal processing perspective. To this end, we first construct portfolios that achieve the optimal expected growth in i.i.d.…
The question of pricing and hedging a given contingent claim has a unique solution in a complete market framework. When some incompleteness is introduced, the problem becomes however more difficult. Several approaches have been adopted in…
We consider a portfolio with call option and the corresponding underlying asset under the standard assumption that stock-market price represents a random variable with lognormal distribution. Minimizing the variance (hedging risk) of the…
Aggregating risks from multiple sources can be complex and demanding, and decision makers usually adopt heuristics to simplify the evaluation process. This paper axiomatizes two closed related and yet different heuristics, narrow bracketing…
We consider the problem of optimal investment with random endowment in a Black--Scholes market for an agent with constant relative risk aversion. Using duality arguments, we derive an explicit expression for the optimal trading strategy,…
The stock market offers a platform where people buy and sell shares of publicly listed companies. Generally, stock prices are quite volatile; hence predicting them is a daunting task. There is still much research going to develop more…
This paper shows how reinforcement learning can be used to derive optimal hedging strategies for derivatives when there are transaction costs. The paper illustrates the approach by showing the difference between using delta hedging and…
Financial portfolio optimization is a widely studied problem in mathematics, statistics, financial and computational literature. It adheres to determining an optimal combination of weights associated with financial assets held in a…
This paper studies a robust portfolio optimization problem under the multi-factor volatility model introduced by Christoffersen et al. (2009). The optimal strategy is derived analytically under the worst-case scenario with or without…
We study a robust portfolio optimization problem under model uncertainty for an investor with logarithmic or power utility. The uncertainty is specified by a set of possible L\'evy triplets; that is, possible instantaneous drift, volatility…
A drawdown constraint forces the current wealth to remain above a given function of its maximum to date. We consider the portfolio optimisation problem of maximising the long-term growth rate of the expected utility of wealth subject to a…
In this paper we derive the exact solution of the multi-period portfolio choice problem for an exponential utility function under return predictability. It is assumed that the asset returns depend on predictable variables and that the joint…
The "standard" Merton formulation of optimal investment and consumption involves optimizing the integrated lifetime utility of consumption, suitably discounted, together with the discounted future bequest. In this formulation the utility of…
Stock price prediction is a challenging task and a lot of propositions exist in the literature in this area. Portfolio construction is a process of choosing a group of stocks and investing in them optimally to maximize the return while…
In the past decade many researchers have proposed new optimal portfolio selection strategies to show that sophisticated diversification can outperform the na\"ive 1/N strategy in out-of-sample benchmarks. Providing an updated review of…