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A new framework for asset price dynamics is introduced in which the concept of noisy information about future cash flows is used to derive the price processes. In this framework an asset is defined by its cash-flow structure. Each cash flow…
There are various metrics for financial risk, such as value at risk (VaR), expected shortfall, expected/unexpected loss, etc. When estimating these metrics, it was very common to assume Gaussian distribution for the asset returns, which may…
A critical problem in the financial world deals with the management of risk, from regulatory risk to portfolio risk. Many such problems involve the analysis of securities modelled by complex dynamics that cannot be captured analytically,…
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…
We present a non-probabilistic, path-by-path framework for studying path-dependent (i.e., where weight is a functional of time and historical time-series), long-only portfolio allocation in continuous-time based on [Chiu & Cont '23], where…
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 introduce polynomial processes in the sense of [8] in the context of stochastic portfolio theory to model simultaneously companies' market capitalizations and the corresponding market weights. These models substantially extend volatility…
How to do big portfolio selection is very important but challenging for both researchers and practitioners. In this paper, we propose a new graph-based conditional moments (GRACE) method to do portfolio selection based on thousands of…
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 investigate whether the tails of firm-level idiosyncratic return distributions are driven by common shocks. We use quantile factor analysis to extract such common idiosyncratic quantile factors with asymmetric pricing effects and we find…
We study the most famous example of a large financial market: the Arbitrage Pricing Model, where investors can trade in a one-period setting with countably many assets admitting a factor structure. We consider the problem of maximising…
The paper discusses capital allocation using the Euler formula and focuses on the risk measures Value-at-Risk (VaR) and Expected shortfall (ES). Some new results connected to this capital allocation is known. Two examples illustrate that…
The numeraire portfolio in a financial market is the unique positive wealth process that makes all other nonnegative wealth processes, when deflated by it, supermartingales. The numeraire portfolio depends on market characteristics, which…
Portfolio sorting is ubiquitous in the empirical finance literature, where it has been widely used to identify pricing anomalies. Despite its popularity, little attention has been paid to the statistical properties of the procedure. We…
Cost-of-capital valuation is a well-established approach to the valuation of liabilities and is one of the cornerstones of current regulatory frameworks for the insurance industry. Standard cost-of-capital considerations typically rely on…
The dynamics of a stock market with heterogeneous agents is discussed in the framework of a recently proposed spin model for the emergence of bubbles and crashes. We relate the log returns of stock prices to magnetization in the model and…
Computational aspects of the optimal consumption and investment with the partially observed stochastic volatility of the asset prices are considered. The new quantization approach to filtering - density quantization - is introduced which…
Risk management is very important for individual investors or companies. There are many ways to measure the risk of investment. Prices of risky assets vary rapidly and randomly due to the complexity of finance market. Random interval is a…
We consider a multi-stock continuous time incomplete market model with random coefficients. We study the investment problem in the class of strategies which do not use direct observations of the appreciation rates of the stocks, but rather…
We present and discuss a stochastic model of financial assets dynamics based on the idea of an inverse renormalization group strategy. With this strategy we construct the multivariate distributions of elementary returns based on the scaling…