Related papers: A return-diversification approach to portfolio sel…
Utility and risk are two often competing measurements on the investment success. We show that efficient trade-off between these two measurements for investment portfolios happens, in general, on a convex curve in the two dimensional space…
This paper proposes a new method for financial portfolio optimization based on reducing simultaneous asset shocks across a collection of assets. This may be understood as an alternative approach to risk reduction in a portfolio based on a…
We address the problem of partial index tracking, replicating a benchmark index using a small number of assets. Accurate tracking with a sparse portfolio is extensively studied as a classic finance problem. However in practice, a tracking…
We investigate an application of network centrality measures to portfolio optimization, by generalizing the method in [Pozzi, Di Matteo and Aste, \emph{Spread of risks across financial markets: better to invest in the peripheries},…
We consider a reference security, understood to be an attractive investment, with the caveat that an investor is not willing to directly invest in the security, for presence of constraints, either investor specific or pertaining to the…
Portfolio allocation with gross-exposure constraint is an effective method to increase the efficiency and stability of selected portfolios among a vast pool of assets, as demonstrated in Fan et al (2008). The required high-dimensional…
This paper investigates the optimal choices of financial derivatives to complete a financial market in the framework of stochastic volatility (SV) models. We introduce an efficient and accurate simulation-based method, applicable to…
We design an optimal strategy for investment in a portfolio of assets subject to a multiplicative Brownian motion. The strategy provides the maximal typical long-term growth rate of investor's capital. We determine the optimal fraction of…
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…
In portfolio risk minimization, the inverse covariance matrix of returns is often unknown and has to be estimated in practice. This inverse covariance matrix also prescribes the hedge trades in which a stock is hedged by all the other…
We study the sensitivity to estimation error of portfolios optimized under various risk measures, including variance, absolute deviation, expected shortfall and maximal loss. We introduce a measure of portfolio sensitivity and test the…
Portfolio diversification and active risk management are essential parts of financial analysis which became even more crucial (and questioned) during and after the years of the Global Financial Crisis. We propose a novel approach to…
We find economically and statistically significant gains when using machine learning for portfolio allocation between the market index and risk-free asset. Optimal portfolio rules for time-varying expected returns and volatility are…
We study the optimal portfolio allocation problem from a Bayesian perspective using value at risk (VaR) and conditional value at risk (CVaR) as risk measures. By applying the posterior predictive distribution for the future portfolio…
Computing diverse sets of high quality solutions for a given optimization problem has become an important topic in recent years. In this paper, we introduce a coevolutionary Pareto Diversity Optimization approach which builds on the success…
This paper proposes swaps on two important new measures of generalized variance, namely the maximum eigenvalue and trace of the covariance matrix of the assets involved. We price these generalized variance swaps for Barndorff-Nielsen and…
Volatility measures the amplitude of price fluctuations. Despite it is one of the most important quantities in finance, volatility is not directly observable. Here we apply a maximum likelihood method which assumes that price and volatility…
We aim to construct a general framework for portfolio management in continuous time, encompassing both stocks and bonds. In these lecture notes we give an overview of the state of the art of optimal bond portfolios and we re-visit main…
We use a replica approach to deal with portfolio optimization problems. A given risk measure is minimized using empirical estimates of asset values correlations. We study the phase transition which happens when the time series is too short…
Value-at-Risk is one of the most popular risk management tools in the financial industry. Over the past 20 years several attempts to include VaR in the portfolio selection process have been proposed. However, using VaR as a risk measure in…