Related papers: f-Betas and Portfolio Optimization with f-Divergen…
We propose a new procedure for the risk measurement of large portfolios. It employs the following objects as the building blocks: - coherent risk measures introduced by Artzner, Delbaen, Eber, and Heath; - factor risk measures introduced in…
Minimum divergence estimators provide a natural choice of estimators in a statistical inference problem. Different properties of various families of these divergence measures such as Hellinger distance, power divergence, density power…
Traditional approaches to estimating beta in finance often involve rigid assumptions and fail to adequately capture beta dynamics, limiting their effectiveness in use cases like hedging. To address these limitations, we have developed a…
We provide analytical results for a static portfolio optimization problem with two coherent risk measures. The use of two risk measures is motivated by joint decision-making for portfolio selection where the risk perception of the portfolio…
A new methodology has been introduced to clean the correlation matrix of single stocks returns based on a constrained principal component analysis using financial data. Portfolios were introduced, namely "Fundamental Maximum Variance…
The fundamental principle in Modern Portfolio Theory (MPT) is based on the quantification of the portfolio's risk related to performance. Although MPT has made huge impacts on the investment world and prompted the success and prevalence of…
The aim of this paper is to provide several examples of convex risk measures necessary for the application of the general framework for portfolio theory of Maier-Paape and Zhu, presented in Part I of this series (arXiv:1710.04579…
We demonstrate that machine learning methods provide a powerful framework for modelling conditional asymmetric risk. Using a large cross-section of US stocks and a comprehensive set of firm characteristics, we show that allowing for…
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 consider the problem of parameter estimation in a Bayesian setting and propose a general lower-bound that includes part of the family of $f$-Divergences. The results are then applied to specific settings of interest and compared to other…
Beta-sorted portfolios -- portfolios comprised of assets with similar covariation to selected risk factors -- are a popular tool in empirical finance to analyze models of (conditional) expected returns. Despite their widespread use, little…
A refinement of Bennett's inequality is introduced which is strictly tighter than the classical bound. The new bound establishes the convergence of the average of independent random variables to its expected value. It also carefully…
The separation of performance metrics from gradient based loss functions may not always give optimal results and may miss vital aggregate information. This paper investigates incorporating a performance metric alongside differentiable loss…
Smart beta, also known as strategic beta or factor investing, is the idea of selecting an investment portfolio in a simple rule-based manner that systematically captures market inefficiencies, thereby enhancing risk-adjusted returns above…
In most real scenarios the construction of a risk-neutral portfolio must be performed in discrete time and with transaction costs. Two human imposed constraints are the risk-aversion and the profit maximization, which together define a…
This paper introduces a unified parametric modeling approach for time-varying market betas that can accommodate continuous-time diffusion and discrete-time series models based on a continuous-time series regression model to better capture…
In this study, we propose a new multi-objective portfolio optimization with idiosyncratic and systemic risks for financial networks. The two risks are measured by the idiosyncratic variance and the network clustering coefficient derived…
In this paper we estimate the mean-variance portfolio in the high-dimensional case using the recent results from the theory of random matrices. We construct a linear shrinkage estimator which is distribution-free and is optimal in the sense…
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…
This paper explores option portfolio optimization when the underlying returns are skew-elliptical t-distributed. We use the variance and value at risk (VaR) to measure portfolio risk. The novelty of our work is the departure from the…