Related papers: Unwitting Markowitz' Simplification of Portfolio R…
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…
We describe how the market-based average and volatility of the "actual" return, which the investors gain within their market sales, depend on the statistical moments, volatilities, and correlations of the current and past market trade…
In the knowledge that the ex-post performance of Markowitz efficient portfolios is inferior to that implied ex-ante, we make two contributions to the portfolio selection literature. Firstly, we propose a methodology to identify the region…
The mean and variance of portfolio returns are the standard quantities to measure the expected return and risk of a portfolio. Efficient portfolios that provide optimal trade-offs between mean and variance warrant consideration. To express…
We consider a portfolio with call option and the corresponding underlying asset under the standard assumption that stock-market price represents a random variable with lognormal distribution. Minimizing the variance (hedging risk) of the…
The time dependence of the recently introduced minimum spanning tree description of correlations between stocks, called the ``asset tree'' have been studied to reflect the economic taxonomy. The nodes of the tree are identified with stocks…
We consider the randomness of market trade as the origin of price and return stochasticity. We look at time series of trade values and volumes as random variables during the averaging interval {\Delta} and describe the dependences of…
It is well known that there are asymmetric dependence structures between financial returns. In this paper we use a new nonparametric measure of local dependence, the local Gaussian correlation, to improve portfolio allocation. We extend the…
The minimum spanning tree, based on the concept of ultrametricity, is constructed from the correlation matrix of stock returns and provides a meaningful economic taxonomy of the stock market. In order to study the dynamics of this asset…
Estimation error has plagued quantitative finance since Harry Markowitz launched modern portfolio theory in 1952. Using random matrix theory, we characterize a source of bias in the sample eigenvectors of financial covariance matrices.…
In this paper we derive the exact solution of the multi-period portfolio choice problem for an exponential utility function under return predictability. It is assumed that the asset returns depend on predictable variables and that the joint…
In the present paper, we derive a closed-form solution of the multi-period portfolio choice problem for a quadratic utility function with and without a riskless asset. All results are derived under weak conditions on the asset returns. No…
Diversification return is an incremental return earned by a rebalanced portfolio of assets. The diversification return of a rebalanced portfolio is often incorrectly ascribed to a reduction in variance. We argue that the underlying source…
This paper is devoted to study the optimal portfolio problem. Harry Markowitz's Ph.D. thesis prepared the ground for the mathematical theory of finance. In modern portfolio theory, we typically find asset returns that are modeled by a…
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…
This paper studies a non-stochastic version of Fernholz's stochastic portfolio theory for a simple model of stock markets with continuous price paths. It establishes non-stochastic versions of the most basic results of stochastic portfolio…
Markowitz's optimal portfolio relies on the accurate estimation of correlations between asset returns, a difficult problem when the number of observations is not much larger than the number of assets. Using powerful results from random…
We explore a decomposition in which returns on a large class of portfolios relative to the market depend on a smooth non-negative drift and changes in the asset price distribution. This decomposition is obtained using general continuous…
Motivated by the problem of utility allocation in a portfolio under a Markowitz mean-variance choice paradigm, we propose an allocation criterion for the variance of the sum of $n$ possibly dependent random variables. This criterion, the…
In this paper, both dynamic mean-variance portfolio selection problems and dynamic variance hedging problems are discussed under non-Markovian framework. Explicit closed-loop equilibrium strategies of these problems are respectively…