Related papers: The Feedback Effect of Hedging in Portfolio Optimi…
We address the problem of portfolio optimization under the simplest coherent risk measure, i.e. the expected shortfall. As it is well known, one can map this problem into a linear programming setting. For some values of the external…
This paper considers the finite horizon portfolio rebalancing problem in terms of mean-variance optimization, where decisions are made based on current information on asset returns and transaction costs. The study's novelty is that the…
The domain of hedge fund investments is undergoing significant transformation, influenced by the rapid expansion of data availability and the advancement of analytical technologies. This study explores the enhancement of hedge fund…
In this paper, we consider the problem of optimization of a portfolio consisting of securities. An investor with an initial capital, is interested in constructing a portfolio of securities. If the prices of securities change, the investor…
Nearly one-half of all trades in financial markets are executed by high-speed, autonomous computer programs -- a type of trading often called high-frequency trading (HFT). Although evidence suggests that HFT increases the efficiency of…
We present an algorithm producing a dynamic non-self-financing hedging strategy in an incomplete market corresponding to investor-relevant risk criterion. The optimization is a two stage process that first determines admissible model…
Although the understanding of and motivation behind individual trading behavior is an important puzzle in finance, little is known about the connection between an investor's portfolio structure and her trading behavior in practice. In this…
In this paper, we consider the problem of hedging Asian options in financial markets with transaction costs. For this, we use the asymptotic hedging approach. The main task of asymptotic hedging in financial markets with transaction costs…
Finding the hedge ratios for a portfolio and risk compression is the same mathematical problem. Traditionally, regression is used for this purpose. However, regression has its own limitations. For example, in a regression model, we can't…
There is a great number of factors to take into account when building and managing an investment portfolio. It is widely believed that a proper set-up of the portfolio combined with a good, robust management strategy is the key to…
In this short note, we consider mean-variance optimized portfolios with transaction costs. We show that introducing quadratic transaction costs makes the optimization problem more difficult than using linear transaction costs. The reason…
Funds at large portfolio management firms may consist of many portfolio managers (PMs), each managing a portion of the fund and optimizing a distinct objective. Although the PMs determine their trades independently, the trade lists may be…
In Electricity markets, illiquidity, transaction costs and market price characteristics prevent managers to replicate exactly contracts. A residual risk is always present and the hedging strategy depends on a risk criterion chosen. We…
We consider the problem of optimizing a portfolio of financial assets, where the number of assets can be much larger than the number of observations. The optimal portfolio weights require estimating the inverse covariance matrix of excess…
Portfolio optimization is a critical area in finance, aiming to maximize returns while minimizing risk. Metaheuristic algorithms were shown to solve complex optimization problems efficiently, with Genetic Algorithms and Particle Swarm…
It is well-known that using delta hedging to hedge financial options is not feasible in practice. Traders often rely on discrete-time hedging strategies based on fixed trading times or fixed trading prices (i.e., trades only occur if the…
We examine the possibility of incorporating information or views of market movements during the holding period of a portfolio, in the hedging of European options with respect to the underlying. Given a fixed holding period interval, we…
This paper investigates the so-called leakage effect of trading strategies generated functionally from rank-dependent portfolio generating functions. This effect measures the loss in wealth of trading strategies due to renewing the…
Trading frictions are stochastic. They are, moreover, in many instances fast-mean reverting. Here, we study how to optimally trade in a market with stochastic price impact and study approximations to the resulting optimal control problem…
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…