Related papers: Markowitz Portfolio Construction at Seventy
In this paper, we consider the problem of optimization of a portfolio consisting of securities. An investor with an initial capital, is interested in constructing a portfolio of securities. If the prices of securities change, the investor…
In this paper, we consider the basic problem of portfolio construction in financial engineering, and analyze how market-based and analytical approaches can be combined to obtain efficient portfolios. As a first step in our analysis, we…
We propose to solve large scale Markowitz mean-variance (MV) portfolio allocation problem using reinforcement learning (RL). By adopting the recently developed continuous-time exploratory control framework, we formulate the exploratory MV…
This paper makes the Millennium Prize problem P vs NP operational in quantitative finance by studying cardinality-constrained portfolio selection. Starting from the convex Markowitz mean-variance program with CAPM-based expected returns (Rf…
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…
We consider an investor facing a classical portfolio problem of optimal investment in a log-Brownian stock and a fixed-interest bond, but constrained to choose portfolio and consumption strategies that reduce a dynamic shortfall risk…
Several portfolio selection models take into account practical limitations on the number of assets to include and on their weights in the portfolio. We present here a study of the Limited Asset Markowitz (LAM), of the Limited Asset Mean…
The standard approach for constructing a Mean-Variance portfolio involves estimating parameters for the model using collected samples. However, since the distribution of future data may not resemble that of the training set, the…
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…
We consider an investor, whose portfolio consists of a single risky asset and a risk free asset, who wants to maximize his expected utility of the portfolio subject to managing the Value at Risk (VaR) assuming a heavy tailed distribution of…
We consider the problem of choosing a portfolio that maximizes the cumulative prospect theory (CPT) utility on an empirical distribution of asset returns. We show that while CPT utility is not a concave function of the portfolio weights, it…
We show that the efficient frontier for a portfolio in which short positions precisely offset the long ones is composed of a pair of straight lines through the origin of the risk-return plane. This unique but important case has been…
In this paper, we develop a time-series-based signed network model for dimensionality reduction in portfolio optimization, grounded in Markowitz's portfolio theory and extended to incorporate higher-order moments of asset return…
The focal point of this paper is the issue of "drawdown" which arises in recursive betting scenarios and related applications in the stock market. Roughly speaking, drawdown is understood to mean drops in wealth over time from peaks to…
Portfolio optimization is a critical area in finance, aiming to maximize returns while minimizing risk. Metaheuristic algorithms were shown to solve complex optimization problems efficiently, with Genetic Algorithms and Particle Swarm…
In this paper, a heuristic method based on TabuSearch and TokenRing Search is being used in order to solve the Portfolio Optimization Problem. The seminal mean-variance model of Markowitz is being considered with the addition of cardinality…
We present a method for constructing the log-optimal portfolio using the well-calibrated forecasts of market values. Dawid's notion of calibration and the Blackwell approachability theorem are used for computing well-calibrated forecasts.…
The Markowitz-based portfolio selection turns to an NP-hard problem when considering cardinality constraints. In this case, existing exact solutions like quadratic programming may not be efficient to solve the problem. Many researchers,…
We consider a group of mean-variance investors with mimicking desire such that each investor is willing to penalize deviations of his portfolio composition from compositions of other group members. Penalizing norm constraints are already…
We propose a method for extending a given asset pricing formula to account for two additional sources of risk: the risk associated with future changes in market--calibrated parameters and the remaining risk associated with idiosyncratic…