Related papers: Portfolio Optimization Rules beyond the Mean-Varia…
It is well known that there are asymmetric dependence structures between financial returns. In this paper we use a new nonparametric measure of local dependence, the local Gaussian correlation, to improve portfolio allocation. We extend the…
In the paper, we consider three quadratic optimization problems which are frequently applied in portfolio theory, i.e, the Markowitz mean-variance problem as well as the problems based on the mean-variance utility function and the quadratic…
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…
This paper studies the mean-variance optimal portfolio choice of an investor pre-committed to a deterministic investment policy in continuous time in a market with mean-reversion in the risk-free rate and the equity risk-premium. In the…
This paper explores the practical approach to portfolio selection methods for investments. The study delves into portfolio theory, discussing concepts such as expected return, variance, asset correlation, and opportunity sets. It also…
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 propose a market model with returns assumed to follow a multivariate normal tempered stable distribution defined by a mixture of the multivariate normal distribution and the tempered stable subordinator. This distribution…
In this paper, we explore the portfolio allocation problem involving an uncertain covariance matrix. We calculate the expected value of the Constant Absolute Risk Aversion (CARA) utility function, marginalized over a distribution of…
Portfolio optimization has long been dominated by covariance-based strategies, such as the Markowitz Mean-Variance framework. However, these approaches often fail to ensure a balanced risk structure across assets, leading to concentration…
This paper considers mean-variance optimization under uncertainty, specifically when one desires a sparsified set of optimal portfolio weights. From the standpoint of a Bayesian investor, our approach produces a small portfolio from many…
We investigate and extend the result that an alpha-weight angle from unconstrained quadratic portfolio optimisations has an upper bound dependent on the condition number of the covariance matrix. This is known to imply that better…
This paper studies a continuous-time market where an agent, having specified an investment horizon and a targeted terminal mean return, seeks to minimize the variance of the return. The optimal portfolio of such a problem is called…
Classical mean-variance portfolio theory tells us how to construct a portfolio of assets which has the greatest expected return for a given level of return volatility. Utility theory then allows an investor to choose the point along this…
Portfolio optimization emerged with the seminal paper of Markowitz (1952). The original mean-variance framework is appealing because it is very efficient from a computational point of view. However, it also has one well-established failing…
We consider the problem of portfolio selection within the classical Markowitz mean-variance framework, reformulated as a constrained least-squares regression problem. We propose to add to the objective function a penalty proportional to the…
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…
The paper Zhao et al. (2015) shows that mean-CVaR-skewness portfolio optimization problems based on asymetric Laplace (AL) distributions can be transformed into quadratic optimization problems under which closed form solutions can be found.…
Portfolio optimization methods suffer from a catalogue of known problems, mainly due to the facts that pair correlations of asset returns are unstable, and that extremal risk measures such as maximum drawdown are difficult to predict due to…
We consider the problem of optimizing a portfolio of financial assets, where the number of assets can be much larger than the number of observations. The optimal portfolio weights require estimating the inverse covariance matrix of excess…
We consider a single-period portfolio selection problem for an investor, maximizing the expected ratio of the portfolio utility and the utility of a best asset taken in hindsight. The decision rules are based on the history of stock returns…