Related papers: Dynamic Black-Litterman
We study the problem of dynamically trading a futures contract and its underlying asset under a stochastic basis model. The basis evolution is modeled by a stopped scaled Brownian bridge to account for non-convergence of the basis at…
In this paper, we study the Black-Litterman (BL) asset allocation model (Black and Litterman, 1990) under the hidden truncation skew-normal distribution (Arnold and Beaver, 2000). In particular, when returns are assumed to follow this skew…
In this article, a geometric approach to incorporating investor views in portfolio construction is presented. In particular, the proposed approach utilizes the notion of generalized Wasserstein barycenter (GWB) to combine the statistical…
This paper studies an optimal trading problem that incorporates the trader's market view on the terminal asset price distribution and uninformative noise embedded in the asset price dynamics. We model the underlying asset price evolution by…
This article explores dynamic factor allocation by analyzing the cyclical performance of factors through regime analysis. The authors focus on a U.S. equity investment universe comprising seven long-only indices representing the market and…
A new framework for asset pricing based on modelling the information available to market participants is presented. Each asset is characterised by the cash flows it generates. Each cash flow is expressed as a function of one or more…
An efficient conditioning technique, the so-called Brownian Bridge simulation, has previously been applied to eliminate pricing bias that arises in applications of the standard discrete-time Monte Carlo method to evaluate options written on…
We propose a simple model for the behaviour of longterm investors on a stock market, consisting of three particles, which represent the current price of the stock and the opinion of the buyers, respectively sellers, about the right trading…
We consider an investor who is dynamically informed about the future evolution of one of the independent Brownian motions driving a stock's price fluctuations. With linear temporary price impact the resulting optimal investment problem with…
We develop a continuous-time general equilibrium framework for economies with a heterogeneous population -- modeled as a continuum -- that repeatedly optimizes over short horizons under relative-income (Duesenberry-type) criteria. The…
The main purpose of this paper is to extend the information-based asset-pricing framework of Brody-Hughston-Macrina to a more general set-up. We include a wider class of models for market information and in contrast to the original paper,…
We consider the pricing problem related to payoffs that can have discontinuities of polynomial growth. The asset price dynamic is modeled within the Black and Scholes framework characterized by a stochastic volatility term driven by a…
We derive closed-form solutions to the optimal stopping problems related to the pricing of perpetual American standard and lookback put and call options in the extensions of the Black-Merton-Scholes model with progressively enlarged…
An innovative extension of Geometric Brownian Motion model is developed by incorporating a weighting factor and a stochastic function modelled as a mixture of power and trigonometric functions. Simulations based on this Modified Brownian…
The present paper proposes a new framework for describing the stock price dynamics. In the traditional geometric Brownian motion model and its variants, volatility plays a vital role. The modern studies of asset pricing expand around…
In financial markets, the information that traders have about an asset is reflected in its price. The arrival of new information then leads to price changes. The `information-based framework' of Brody, Hughston and Macrina (BHM) isolates…
We model the dynamics of asset prices and associated derivatives by consideration of the dynamics of the conditional probability density process for the value of an asset at some specified time in the future. In the case where the price…
In this paper an arbitrage strategy is constructed for the modified Black-Scholes model driven by fractional Brownian motion or by a time changed fractional Brownian motion, when the volatility is stochastic. This latter property allows the…
In this paper, we consider the portfolio optimization problem in a financial market under a general utility function. Empirical results suggest that if a significant market fluctuation occurs, invested wealth tends to have a notable change…
We consider the problem of maximizing expected utility for a power investor who can allocate his wealth in a stock, a defaultable security, and a money market account. The dynamics of these security prices are governed by geometric Brownian…