Related papers: Stochastic portfolio theory with price impact
This paper develops a method to derive optimal portfolios and risk premia explicitly in a general diffusion model for an investor with power utility and a long horizon. The market has several risky assets and is potentially incomplete.…
In stochastic portfolio theory, a relative arbitrage is an equity portfolio which is guaranteed to outperform a benchmark portfolio over a finite horizon. When the market is diverse and sufficiently volatile, and the benchmark is the market…
The "standard" Merton formulation of optimal investment and consumption involves optimizing the integrated lifetime utility of consumption, suitably discounted, together with the discounted future bequest. In this formulation the utility of…
We prove the Fundamental Theorem of Asset Pricing for a discrete time financial market where trading is subject to proportional transaction cost and the asset price dynamic is modeled by a family of probability measures, possibly…
We solve in closed-form an equilibrium model in which a finite number of exponential investors continuously consume and trade with price-impact. Compared to the analogous Pareto-efficient equilibrium model, price-impact has an amplification…
The paper studies derivative asset analysis in structural credit risk models where the asset value of the firm is not fully observable. It is shown that in order to compute the price dynamics of traded securities one needs to solve a…
In this paper, we present an integrated approach to portfolio construction and optimization, leveraging high-performance computing capabilities. We first explore diverse pairings of generative model forecasts and objective functions used…
Motivated by practical applications, we explore the constrained multi-period mean-variance portfolio selection problem within a market characterized by a dynamic factor model. This model captures predictability in asset returns driven by…
We review some fundamental concepts of investment from a mathematical perspective, concentrating specifically on fractional-Kelly portfolios, which allocate a fraction of wealth to a growth-optimal portfolio while the remainder collects (or…
We study the problem of optimal long term portfolio selection with a view to beat a benchmark. Two kinds of objectives are considered. One concerns the probability of outperforming the benchmark and seeks either to minimise the decay rate…
We introduce a pathwise approach to analyze the relative performance of an equity portfolio with respect to a benchmark market portfolio. In this energy-entropy framework, the relative performance is decomposed into three components: a…
In this paper, we develop a novel large volatility matrix estimation procedure for analyzing global financial markets. Practitioners often use lower-frequency data, such as weekly or monthly returns, to address the issue of different…
Linear stochastic models and discretized kinetic theory are two complementary analytical techniques used for the investigation of complex systems of economic interactions. The former employ Langevin equations, with an emphasis on stock…
We develop a tractable equilibrium model for price formation in intraday electricity markets in the presence of intermittent renewable generation. Using stochastic control theory, we identify the optimal strategies of agents with market…
The idiosyncratic (microscopic) and systemic (macroscopic) components of market structure have been shown to be responsible for the departure of the optimal mean-variance allocation from the heuristic `equally-weighted' portfolio. In this…
This paper investigates a continuous-time portfolio optimization problem with the following features: (i) a no-short selling constraint; (ii) a leverage constraint, that is, an upper limit for the sum of portfolio weights; and (iii) a…
In speculative markets, risk-free profit opportunities are eliminated by traders exploiting them. Markets are therefore often described as "informationally efficient", rapidly removing predictable price changes, and leaving only residual…
We present a model of price formation in an inelastic market whose dynamics are partially driven by both money flows and their impact on asset prices. The money flow to the market is viewed as an investment policy of outside investors. For…
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…
We provide closed-form market equilibrium formula consolidating informational imperfections and investors beliefs. Based on Merton's model, we characterize the equilibrium expected excess returns vector with incomplete information. We then…