Related papers: On a Stochastic Model of Diversification
The inf-convolution of risk measures is directly related to risk sharing and general equilibrium, and it has attracted considerable attention in mathematical finance and insurance problems. However, the theory is restricted to finite sets…
We consider an investor who seeks to maximize her expected utility derived from her terminal wealth relative to the maximum performance achieved over a fixed time horizon, and under a portfolio drawdown constraint, in a market with local…
We consider a reference security, understood to be an attractive investment, with the caveat that an investor is not willing to directly invest in the security, for presence of constraints, either investor specific or pertaining to the…
In this paper we develop a concrete and fully implementable approach to the optimization of functionally generated portfolios in stochastic portfolio theory. The main idea is to optimize over a family of rank-based portfolios parameterized…
The notion of stochastic precedence between two random variables emerges as a relevant concept in several fields of applied probability. When one consider a vector of random variables $X_1,...,X_n$, this notion has a preeminent role in the…
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…
Portfolio's optimal drivers for diversification are common causes of the constituents' correlations. A closed-form formula for the conditional probability of the portfolio given its optimal common drivers is presented, with each pair…
In this work, we study a dynamic portfolio optimization problem related to pairs trading, which is an investment strategy that matches a long position in one security with a short position in another security with similar characteristics.…
In a discrete-time market, we study model-independent superhedging, while the semi-static superhedging portfolio consists of {\it three} parts: static positions in liquidly traded vanilla calls, static positions in other tradable, yet…
We consider composite loss functions for multiclass prediction comprising a proper (i.e., Fisher-consistent) loss over probability distributions and an inverse link function. We establish conditions for their (strong) convexity and explore…
We study how to assess the potential benefit of diversifying an equity portfolio by investing within and across equity sectors. We analyse 20 years of US stock price data, which includes the global financial crisis (GFC) and the COVID-19…
This paper investigates the equilibrium portfolio selection for smooth ambiguity preferences in a continuous-time market. The investor is uncertain about the risky asset's drift term and updates the subjective belief according to the…
This paper addresses a novel \emph{cost-sensitive} distributionally robust log-optimal portfolio problem, where the investor faces \emph{ambiguous} return distributions, and a general convex transaction cost model is incorporated. The…
The current definition of a conditional probability distribution enables one to update probabilities only on the basis of stochastic information. This paper provides a definition for conditional probability distributions with non-stochastic…
Biological living systems in general exhibit complex and diverse dynamics. The latter, in particular, is essential, since diversification increases the odds of survival of an organism while reducing the risk of extinction of the population.…
Growth-optimal portfolios are guaranteed to accumulate higher wealth than any other investment strategy in the long run. However, they tend to be risky in the short term. For serially uncorrelated markets, similar portfolios with more…
We present a simple approach to forecasting conditional probability distributions of asset returns. We work with a parsimonious specification of ordered binary choice regression that imposes a connection on sign predictability across…
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,…
We model stochastic choice as environment-dependent switching among a small library of deterministic decision rules. A Random Rule Model generates menu-level choice probabilities via named, interpretable rules weighted by observable menu…
Recent work has emphasized the diversification benefits of combining trend signals across multiple horizons, with the medium-term window-typically six months to one year-long viewed as the "sweet spot" of trend-following. This paper…