Related papers: Understanding the Long-Only Minimum Variance Portf…
We introduce a multivariate stochastic volatility model for asset returns that imposes no restrictions to the structure of the volatility matrix and treats all its elements as functions of latent stochastic processes. When the number of…
We consider small factor analysis models with one or two factors. Fixing the number of factors, we prove a finiteness result about the covariance matrix parameter space when the size of the covariance matrix increases. According to this…
Searching for new effective risk factors on stock returns is an important research topic in asset pricing. Factor modeling is an active research topic in statistics and econometrics, with many new advances. However, these new methods have…
Diversification of an investment into independently fluctuating assets reduces its risk. In reality, movement of assets are are mutually correlated and therefore knowledge of cross--correlations among asset price movements are of great…
This paper considers the mean variance portfolio management problem. We examine portfolios which contain both primary and derivative securities. The challenge in this context is due to portfolio's nonlinearities. The delta-gamma…
We provide a simple method to estimate the parameters of multivariate stochastic volatility models with latent factor structures. These models are very useful as they alleviate the standard curse of dimensionality, allowing the number of…
This paper proposes a robust, shocks-adaptive portfolio in a large-dimensional assets universe where the number of assets could be comparable to or even larger than the sample size. It is well documented that portfolios based on…
We give a complete algorithm and source code for constructing general multifactor risk models (for equities) via any combination of style factors, principal components (betas) and/or industry factors. For short horizons we employ the…
What is the best market-neutral implementation of classical Equity Factors? Should one use the specific predictability of the short-leg to build a zero beta Long-Short portfolio, in spite of the specific costs associated to shorting, or is…
A linear multi-factor model is one of the most important tools in equity portfolio management. The linear multi-factor models are widely used because they can be easily interpreted. However, financial markets are not linear and their…
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…
We consider the problem of maximizing the asymptotic growth rate of an investor under drift uncertainty in the setting of stochastic portfolio theory (SPT). As in the work of Kardaras and Robertson we take as inputs (i) a Markovian…
This paper deals with the time-varying high dimensional covariance matrix estimation. We propose two covariance matrix estimators corresponding with a time-varying approximate factor model and a time-varying approximate characteristic-based…
We use the martingale method to discuss the relationship between mean-variance (MV) and monotone mean-variance (MMV) portfolio selections. We propose a unified framework to discuss the relationship in general financial markets without any…
Deep learning offers new tools for portfolio optimization. We present an end-to-end framework that directly learns portfolio weights by combining Long Short-Term Memory (LSTM) networks to model temporal patterns, Graph Attention Networks…
We analyze characteristics' joint predictive information through the lens of out-of-sample power utility functions. Linking weights to characteristics to form optimal portfolios suffers from estimation error which we mitigate by maximizing…
We extend and test empirically the multifractal model of asset returns based on a multiplicative cascade of volatilities from large to small time scales. The multifractal description of asset fluctuations is generalized into a multivariate…
In the practical business of asset management by investment trusts and the like, the general practice is to manage over the medium to long term owing to the burden of operations and increase in transaction costs with the increase in…
Beta-sorted portfolios -- portfolios comprised of assets with similar covariation to selected risk factors -- are a popular tool in empirical finance to analyze models of (conditional) expected returns. Despite their widespread use, little…
We propose a novel class of multivariate GARCH models that incorporate realized measures of volatility and correlations. The key innovation is an unconstrained vector parametrization of the conditional correlation matrix, which enables the…