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Even in the face of deteriorating and highly volatile demand, firms often invest in, rather than discard, aging technologies. In order to study this phenomenon, we model the firm's profit stream as a Brownian motion with negative drift. At…
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…
Linear Mixed Effects (LME) models have been widely applied in clustered data analysis in many areas including marketing research, clinical trials, and biomedical studies. Inference can be conducted using maximum likelihood approach if…
This paper studies a variation of the continuous-time mean-variance portfolio selection where a tracking-error penalization is added to the mean-variance criterion. The tracking error term penalizes the distance between the allocation…
This paper studies the portfolio optimization problem when the investor's utility is general and the return and volatility of the risky asset are fast mean-reverting, which are important to capture the fast-time scale in the modeling of…
We discuss modelling of SPX and DAX index option prices using the Shifted Log-Normal (SLN) model, (also known as Displaced Diffusion), and the SABR model. We found out that for SPX options, an example of strongly skewed option prices, SLN…
We consider a fundamental dynamic allocation problem motivated by the problem of $\textit{securities lending}$ in financial markets, the mechanism underlying the short selling of stocks. A lender would like to distribute a finite number of…
In this paper, we investigate a portfolio investment problem under volatility uncertainty and short-sale constraints market via sublinear expectation which is used to model volatility uncertainty. We assume the stocks admit volatility…
The question of optimal portfolio is addressed. The conventional Markowitz portfolio optimisation is discussed and the shortcomings due to non-Gaussian security returns are outlined. A method is proposed to minimise the likelihood of…
In classic Kelly gambling, bets are chosen to maximize the expected log growth of wealth, under a known probability distribution. Breiman provides rigorous mathematical proofs that Kelly strategy maximizes the rate of asset growth…
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…
This article introduces a novel hybrid regime identification-forecasting framework designed to enhance multi-asset portfolio construction by integrating asset-specific regime forecasts. Unlike traditional approaches that focus on broad…
Harvey et al. (2010) extended the Bayesian estimation method by Sahu et al. (2003) to a multivariate skew-elliptical distribution with a general skewness matrix, and applied it to Bayesian portfolio optimization with higher moments.…
Cross-sectional dispersion in firm-level realized skewness is significantly and negatively related to future stock market returns. The predictive power of skewness dispersion is robust to in-sample and out-of-sample estimation and is…
This paper proposes factor stochastic volatility models with skew error distributions. The generalized hyperbolic skew t-distribution is employed for common-factor processes and idiosyncratic shocks. Using a Bayesian sparsity modeling…
This paper formulates and studies a general continuous-time behavioral portfolio selection model under Kahneman and Tversky's (cumulative) prospect theory, featuring S-shaped utility (value) functions and probability distortions. Unlike the…
Laplace distribution is popular in the field of economics and finance. Still, data sets often show a lack of symmetry and a tendency of being bounded from either side of their support. In view of this, we introduce a new family of skew…
In practice, one must recognize the inevitable incompleteness of information while making decisions. In this paper, we consider the optimal redeeming problem of stock loans under a state of incomplete information presented by the…
Empirical studies indicate the existence of long range dependence in the volatility of the underlying asset. This feature can be captured by modeling its return and volatility using functions of a stationary fractional Ornstein--Uhlenbeck…
Distributions of assets returns exhibit a slight skewness. In this note we show that our model of endogenous price formation \cite{Reimann2006} creates an asymmetric return distribution if the price dynamics are a process in which…