Related papers: Portfolio Diversification Revisited
Classical portfolio optimization methods typically determine an optimal capital allocation through the implicit, yet critical, assumption of statistical time-invariance. Such models are inadequate for real-world markets as they employ…
Up to now, the nonparametric analysis of multidimensional continuous-time Markov processes has focussed strongly on specific model choices, mostly related to symmetry of the semigroup. While this approach allows to study the performance of…
In this paper, we discuss the ambiguous chance constrained based portfolio optimization problems, in which the perturbations associated with the input parameters are stochastic in nature, but their distributions are not known precisely. We…
We study the consistency of sample mean-variance portfolios of arbitrarily high dimension that are based on Bayesian or shrinkage estimation of the input parameters as well as weighted sampling. In an asymptotic setting where the number of…
The investment economy is a main characteristic of prosperous society. The investment portfolio management is a main financial problem, which has to be solved by the investment, commercial and central banks with the application of modern…
Since risky positions in multivariate portfolios can be offset by various choices of capital requirements that depend on the exchange rules and related transaction costs, it is natural to assume that the risk measures of random vectors are…
This paper explores the mean-variance portfolio selection problem in a multi-period financial market characterized by regime-switching dynamics and uncontrollable liabilities. To address the uncertainty in the decision-making process within…
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…
We study a stochastic multiplicative system composed of finite asynchronous elements to describe the wealth evolution in financial markets. We find that the wealth fluctuations or returns of this system can be described by a walk with…
An investment portfolio consists of $n$ algorithmic trading strategies, which generate vectors of positions in trading assets. Sign opposite trades (buy/sell) cross each other as strategies are combined in a portfolio. Then portfolio…
In many insurance contexts, dependence between risks of a portfolio may arise from their frequencies. We investigate a dependent risk model in which we assume the vector of count variables to be a tree-structured Markov random field with…
We develop a practical approach to establish the stability, that is, the recurrence in a given set, of a large class of controlled Markov chains. These processes arise in various areas of applied science and encompass important numerical…
Information relaxation and duality in Markov decision processes have been studied recently by several researchers with the goal to derive dual bounds on the value function. In this paper we extend this dual formulation to controlled Markov…
Diversification represents the idea of choosing variety over uniformity. Within the theory of choice, desirability of diversification is axiomatized as preference for a convex combination of choices that are equivalently ranked. This…
This paper presents an analytically tractable and practically-oriented model of non-linear dynamics of a multi-asset market in the limit of a large number of assets. The asset price dynamics are driven by money flows into the market from…
We examine the problem of optimal portfolio allocation within the framework of utility theory. We apply exponential utility to derive the optimal diversification strategy and logarithmic utility to determine the optimal leverage. We enhance…
Excessive leverage, i.e. the abuse of debt financing, is considered one of the primary factors in the default of financial institutions. Systemic risk results from correlations between individual default probabilities that cannot be…
We develop a liquidity-sensitive multivariate volatility framework to improve the estimation of time-varying covariance structures under market frictions. We introduce two novel portfolio-level liquidity measures, liquidity jump and…
In this short note the theory for multivariate asset allocation with elliptically symmetric distributions of returns, as developed in the author's prior work, is specialized to the case of returns drawn from a multivariate Laplace…
The probability distribution for the relative return of a portfolio constructed from a subset n of the assets from a benchmark, consisting of N assets whose returns are multivariate normal, is completely characterized by its tracking error.…