Related papers: Optimal trend following portfolios
Individual investors are now massively using online brokers to trade stocks with convenient interfaces and low fees, albeit losing the advice and personalization traditionally provided by full-service brokers. We frame the problem faced by…
We present a systematic, trend-following strategy, applied to commodity futures markets, that combines univariate trend indicators with cross-sectional trend indicators that capture so-called {\em momentum spillover}, which can occur when…
The idiosyncratic (microscopic) and systemic (macroscopic) components of market structure have been shown to be responsible for the departure of the optimal mean-variance allocation from the heuristic `equally-weighted' portfolio. In this…
Estimating the covariance of asset returns, i.e., the risk model, is a key component of financial portfolio construction and evaluation. Most risk modeling approaches produce a factor model that decomposes the asset variability into two…
Pairs trading, a strategy that capitalizes on price movements of asset pairs driven by similar factors, has gained significant popularity among traders. Common practice involves selecting highly cointegrated pairs to form a portfolio, which…
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…
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…
Portfolio selection is the central task for assets management, but it turns out to be very challenging. Methods based on pattern matching, particularly the CORN-K algorithm, have achieved promising performance on several stock markets. A…
It is shown that the axioms for coherent risk measures imply that whenever there is an asset in a portfolio that dominates the others in a given sample (which happens with finite probability even for large samples), then this portfolio…
High precision analytical approximation is proposed for variance-covariance based risk allocation in a portfolio of risky assets. A general case of a single-period multi-factor Merton-type model with stochastic recovery is considered. The…
We address the problem of portfolio optimization under the simplest coherent risk measure, i.e. the expected shortfall. As it is well known, one can map this problem into a linear programming setting. For some values of the external…
The optimal allocation of assets has been widely discussed with the theoretical analysis of risk measures, and pessimism is one of the most attractive approaches beyond the conventional optimal portfolio model. The $\alpha$-risk plays a…
We address a portfolio selection problem that combines active (outperformance) and passive (tracking) objectives using techniques from convex analysis. We assume a general semimartingale market model where the assets' growth rate processes…
In this article we introduce a portfolio optimisation framework, in which the use of rough path signatures (Lyons, 1998) provides a novel method of incorporating path-dependencies in the joint signal-asset dynamics, naturally extending…
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)…
Modern portfolio theory(MPT) addresses the problem of determining the optimum allocation of investment resources among a set of candidate assets. In the original mean-variance approach of Markowitz, volatility is taken as a proxy for risk,…
In this paper, we document a novel machine learning based bottom-up approach for static and dynamic portfolio optimization on, potentially, a large number of assets. The methodology applies to general constrained optimization problems and…
Markowitz (1952, 1959) laid down the ground-breaking work on the mean-variance analysis. Under his framework, the theoretical optimal allocation vector can be very different from the estimated one for large portfolios due to the intrinsic…
With the advent of Web 2.0, various types of data are being produced every day. This has led to the revolution of big data. Huge amount of structured and unstructured data are produced in financial markets. Processing these data could help…
Portfolio optimization has been an area that has attracted considerable attention from the financial research community. Designing a profitable portfolio is a challenging task involving precise forecasting of future stock returns and risks.…