Related papers: Statistical arbitrage portfolio construction based…
We generalize the Arbitrage Pricing Theory (APT) to include the contribution of virtual arbitrage opportunities. We model the arbitrage return by a stochastic process. The latter is incorporated in the APT framework to calculate the…
This paper considers portfolio construction in a dynamic setting. We specify a loss function comprised of utility and complexity components with an unknown tradeoff parameter. We develop a novel regret-based criterion for selecting the…
By employing the technique of enlargement of filtrations, we demonstrate how to incorporate information about the future trend of the stochastic interest rate process into a financial model. By modeling the interest rate as an affine…
We propose a novel approach to infer investors' risk preferences from their portfolio choices, and then use the implied risk preferences to measure the efficiency of investment portfolios. We analyze a dataset spanning a period of six…
A speculative agent with Prospect Theory preference chooses the optimal time to purchase and then to sell an indivisible risky asset to maximize the expected utility of the round-trip profit net of transaction costs. The optimization…
We consider the estimation of the multi-period optimal portfolio obtained by maximizing an exponential utility. Employing Jeffreys' non-informative prior and the conjugate informative prior, we derive stochastic representations for the…
Building on a prominent agent-based model, we present a new structural stochastic volatility asset pricing model of fundamentalists vs. chartists where the prices are determined based on excess demand. Specifically, this allows for…
We study and formulate arbitrage in display advertising. Real-Time Bidding (RTB) mimics stock spot exchanges and utilises computers to algorithmically buy display ads per impression via a real-time auction. Despite the new automation, the…
In this paper we consider an interval portfolio selection problem with uncertain returns and introduce an inclusive concept of satisfaction index for interval inequality relation. Based on the satisfaction index, we propose an approach to…
This paper develops a new dual approach to compute the hedging portfolio of a Bermudan option and its initial value. It gives a "purely dual" algorithm following the spirit of Rogers (2010) in the sense that it only relies on the dual…
We propose two solution concepts for matchings under preferences: robustness and near stability. The former strengthens while the latter relaxes the classic definition of stability by Gale and Shapley (1962). Informally speaking, robustness…
In this paper, we introduce EvoPort, a novel evolutionary portfolio optimization method that leverages stochastic exploration over a spectrum of investment pipeline depths. From raw equity data, we employ a randomized feature generation…
We derive behavioral finance option pricing formulas consistent with the rational dynamic asset pricing theory. In the existing behavioral finance option pricing formulas, the price process of the representative agent is not a…
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…
The focus of this paper is on identifying the most effective selling strategy for pairs trading of stocks. In pairs trading, a long position is held in one stock while a short position is held in another. The goal is to determine the…
This paper introduces the Bradley-Terry Regression Trunk model, a novel probabilistic approach for the analysis of preference data expressed through paired comparison rankings. In some cases, it may be reasonable to assume that the…
The stable marriage problem and its extensions have been extensively studied, with much of the work in the literature assuming that agents fully know their own preferences over alternatives. This assumption however is not always practical…
Sequential allocation is a simple mechanism for sharing multiple indivisible items. We study strategic behavior in sequential allocation. In particular, we consider Nash dynamics, as well as the computation and Pareto optimality of pure…
Traditional risk-adjusted returns, such as the Treynor, Sharpe, Sortino, and Information ratios, have been pivotal in portfolio asset allocation, focusing on minimizing risk while maximizing profit. Nevertheless, these metrics often fail to…
Portfolio construction is the science of balancing reward and risk; it is at the core of modern finance. In this paper, we tackle the question of optimal decision-making within a Bayesian paradigm, starting from a decision-theoretic…