Related papers: Quantifying dimensional change in stochastic portf…
In the context of stochastic portfolio theory we introduce a novel class of portfolios which we call linear path-functional portfolios. These are portfolios which are determined by certain transformations of linear functions of a…
This paper studies an equity market of stochastic dimension, where the number of assets fluctuates over time. In such a market, we develop the fundamental theorem of asset pricing, which provides the equivalence of the following statements:…
A technique from stochastic portfolio theory [Fernholz, 1998] is applied to analyse equity returns of Small, Mid and Large cap portfolios in an emerging market through periods of growth and regional crises, up to the onset of the global…
The variance measures the portfolio risks the investors are taking. The investor, who holds his portfolio and doesn't trade his shares, at the current time can use the time series of the market trades that were made during the averaging…
In the stochastic volatility models for multivariate daily stock returns, it has been found that the estimates of parameters become unstable as the dimension of returns increases. To solve this problem, we focus on the factor structure of…
We present a simulation-and-regression method for solving dynamic portfolio allocation problems in the presence of general transaction costs, liquidity costs and market impacts. This method extends the classical least squares Monte Carlo…
We introduce polynomial processes in the sense of [8] in the context of stochastic portfolio theory to model simultaneously companies' market capitalizations and the corresponding market weights. These models substantially extend volatility…
Portfolio optimisation is essential in quantitative investing, but its implementation faces several practical difficulties. One particular challenge is converting optimal portfolio weights into real-life trades in the presence of realistic…
Stock market returns are typically analyzed using standard regression, yet they reside on irregular domains which is a natural scenario for graph signal processing. To this end, we consider a market graph as an intuitive way to represent…
This paper presents a synthesis of the theories of portfolio generating functions and option pricing. The theory of portfolio generation is extended to measure the value of portfolios generated by positive C^{2,1} functions of asset prices…
This paper studies the bank dynamic decision problem in the intermediate time step for a discrete-time setup. We have considered a three-time-step model. Initially, the banks raise money through debt and equity and invest in different types…
New theoretical approaches about forecasting stock markets are proposed. A mathematization of the stock market in terms of arithmetical relations is given, where some simple (non-differential, non-fractal) expressions are also suggested as…
The Capital Asset Pricing Model (CAPM) relates a well-diversified stock portfolio to a benchmark portfolio. We insert size effect in CAPM, capturing the observation that small stocks have higher risk and return than large stocks, on…
The discrepancy between realized volatility and the market's view of volatility has been known to predict individual equity options at the monthly horizon. It is not clear how this predictability depends on a forecast's ability to predict…
In this paper, we implement and evaluate a conditional diffusion model for asset return prediction and portfolio construction on large-scale equity data. Our method models the full distribution of future returns conditioned on firm…
We take a new look at the problem of disentangling the volatility and jumps processes of daily stock returns. We first provide a computational framework for the univariate stochastic volatility model with Poisson-driven jumps that offers a…
The present article explores the application of randomized control techniques in empirical asset pricing and performance evaluation. It introduces geometric random walks, a class of Markov chain Monte Carlo methods, to construct flexible…
According to the volatility feedback effect, an unexpected increase in squared volatility leads to an immediate decline in the price-dividend ratio. In this paper, we consider the properties of stock price dynamics and option valuations…
We propose a fast and flexible method to scale multivariate return volatility predictions up to high-dimensions using a dynamic risk factor model. Our approach increases parsimony via time-varying sparsity on factor loadings and is able to…
A market portfolio is a portfolio in which each asset is held at a weight proportional to its market value. Functionally generated portfolios are portfolios for which the logarithmic return relative to the market portfolio can be decomposed…